Question

impco, a retailer, makes both cash and credit sales (i.e., sales on open account). Information regarding budgeted sales for the last quarter of the year is as follows:

	October			November			December
Cash sales	$	140,000		$	115,000		$	105,000
Credit sales		140,000			138,000			115,500
Total	$	280,000		$	253,000		$	220,500

Past experience shows that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale; the remaining 40% are collected in the month following the month of sale. Customers are granted a 1.5% discount for payment within 10 days of billing. Approximately 75% of collectible credit sales take advantage of the cash discount.

Inventory purchases each month are 100% of the cost of the following month’s projected sales. (The gross profit rate for Timpco is approximately 30%.) All merchandise purchases are made on credit, with 20% paid in the month of purchase and the remainder paid in the following month. No cash discounts for early payment are in effect.

Required:

1. Calculate the budgeted total cash receipts for November and December. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

2. Calculate budgeted cash disbursements for November and December (budgeted total sales for January of the coming year equals $205,000).

Answer 1

1)

Impco.
Budgeted Cash Receipts
	November	December
Cash Sales	$115,000	$105,000
Cash collections from credit sales:
October sales ($140,000*40/100)	$56,000
November Sales ($138,000*60/100); ($138,000*40/100)	$82,800	$55,200
December Sales ($115,500*60/100)		$69,300
Total Cash Collections	$253,800	$229,500

2)

Impco.
Budgeted Cash Disbursements
	November	December
Cash payments for merchandise purchase:
October purchases ($177,100*80/100)	$141,680
November purchases ($154,350*20/100); ($154,350*80/100)	$30,870	$123,480
December purchases ($143,500*20/100)		$28,700
Total Cash Disbursements	$172,550	$152,180

Working notes:

	October	November	December	January
Total Sales	$280,000	$253,000	$220,500	$205,000
Cost of Goods Sold (100% - 30% = 70%)	$196,000	$177,100	$154,350	$143,500
Purchases will be 100% of the cost of the sales of following month	$177,100	$154,350	$143,500