Question

Moorcroft Company’s budgeted sales and direct materials purchases are as follows:

		Budgeted Sales		Budgeted D.M. Purchases
April		$329,000		$42,000
May		318,000		54,000
June		406,000		64,000

Moorcroft’s sales are 40% cash and 60% credit. Credit sales are collected 20% in the month of sale, 50% in the month following sale, and 26% in the second month following sale; 4% are uncollectible. Moorcroft’s purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month following the purchase and 60% in the second month following the purchase.

Prepare a schedule of expected collections from customers for June.

Moorcroft Company Schedule of Expected Collections from Customers
		Sales		April		May		June
April		$		$		$		$
May
June
Total Collections				$		$		$

  

  

Prepare a schedule of expected payments for direct materials for June.

Moorcroft Company Schedule of Expected Payment for Direct Materials
		Purchases		April		May		June
April		$		$		$		$
May
June
Total Collections				$		$		$

  

  

Moorcroft’s assistant controller suggested that Moorcroft hire a part time collector to encourage customers to pay more promptly and to reduce the amount of uncollectible accounts. Sales are still 40% cash and 60% credit but the assistant controller predicted that this would cause credit sales to be collected 30% in the month of the sale, 50% in the month following sale, and 18% in the second month following sale; 2% are uncollectible.

Prepare a schedule of expected collections from customers for June. How did these changes impact cash collections?

Moorcroft Company Schedule of Expected Collections from Customers
		Sales		April		May		June
April		$		$		$		$
May
June
Total Collections				$		$		$

Would it be worth paying the collector $1,000 per month?

It                                                                       would be would not be worth paying the collector $1,000 per month to improve the cash collections of the company.

  

  

The assistant controller also suggested that the company switch their purchases to 40% cash and 60% on account to help stretch out their cash payments. There is no additional interest charge to do this and Moorcroft is still paying their bills on time. There is no change to the company’s payment pattern.

Prepare a schedule of expected payments for direct materials for June.

Moorcroft Company Schedule of Expected Payment for Direct Materials
		Purchases		April		May		June
April		$		$		$		$
May
June
Total Collections				$		$		$

How did these changes impact the cash payments for June?

Cash payments                                                                       increased/decreased by $  .

Answer 1