Question

Duffy Dog Retailers expects to make inventory purchases in the next quarter as follows:

April		$58,200
May		70,000
June		97,700

Prior experience has shown that 70 percent of a month’s purchases are paid in the month of purchase and 30 percent are paid in the month following purchase. March purchases were $51,900.

Estimate cash disbursements related to purchases for April, May, and June.

Cash disbursements for purchases	April		May		June
Payment of March purchases	$		$		$
Payment of April purchases
Payment of May purchases
Payment of June purchases
	$		$		$

Answer 1

Computation of cash disbursements related to purchases for April, May, and June :

	April	May	June
Payment for March purchases	$          15,570	$                   -	$                   -
Payment for April purchases	$          40,740	$          17,460	$                   -
Payment for May purchases	$                   -	$          49,000	$          21,000
Payment for June purchases	$                   -	$                   -	$          68,390
Total	$          56,310	$          66,460	$          89,390

Working Note : Calculation of total cash payment

		Payment in April	Payment in April	Payment in May	Payment in May	Payment in June	Payment in June
Month	Purchases	%	$	%	$	%	$
	(i)	(ii)	(iii)[(i)*(ii)]	(iv)	(v)[(i)*(iv)]	(vi)	(vii)[(i)*(vi)]
March	$                   51,900	30%	$               15,570	0%	$                 -	0%	$                -
April	$                   58,200	70%	$               40,740	30%	$        17,460	0%	$                -
May	$                   70,000	0%	$                        -	70%	$        49,000	30%	$       21,000
June	$                   97,700	0%	$                        -	0%	$                 -	70%	$       68,390
TOTAL	$               2,25,900	100%	$               56,310	100%	$        66,460	100%	$       89,390