Question

Maluwana Stores had sales of K700, 000 in November and K850, 000 in December. It expects sales to be as follows during the first six months of the next year:

Month January February March April May June

Sales K500, 000 450,000 550,000 600,000 625,000 600,000

In the past, 17.5 percent of Maluwana’s sales are paid in cash at the time of the sale, 52.5 percent are paid the following month, and 30 percent are paid in the second month following the sale.   

1. Prepare a spreadsheet showing the expected inflow of operating revenues for the first six months of next year.
2. An analysis of the records of Maluwana Stores shows that the cost of goods they sell has averaged 70 percent of the Kwacha value of sales. To save inventory holding costs, Maluwana schedules its receipts of goods for the beginning of the month in which the goods are expected to be sold. Maluwana pays for 20 percent of its purchased goods in the same month that the suppliers deliver the goods. The store pays for 40 percent of its purchased goods in the month following delivery and for 40 percent of its purchased goods two months after delivery. Sales during November and December of last year and forecast sales for the first six months of next year are as given above. What are the cash outflows to pay for purchased goods for each of the first six months of next year?

Answer 1

a. Prepare a statement showing the expected inflow of operating revenues for the first six months of next year.

Particulars	Basis	November	December	January	February	March	April	May	June
Sales	Given	700,000	850,000	500,000	450,000	550,000	600,000	625,000	600,000
Cash from sales received in the same month	17.5% of current month sales	122,500	148,750	87,500	78,750	96,250	105,000	109,375	105,000
Cash from sales received in the next month	52.5% of previous month sale		367,500	446,250	262,500	236,250	288,750	315,000	328,125
Cash from sales received 2 months later	30% of the pre -previous months sale			210,000	255,000	150,000	135,000	165,000	180,000
Total Cash from Operating Revenue		122,500	516,250	743,750	596,250	482,500	528,750	589,375	613,125

Cash from Operating Revenues for -

January - K743,750

February - K596,250

March - K482,500

April -K528,750

May -K589,375

June -K613,125

b. Prepare a statement to show the cash outflows to pay for purchased goods for each of the first six months of next year.

Particulars	Basis	November	December	January	February	March	April	May	June
Sales	Given	700,000	850,000	500,000	450,000	550,000	600,000	625,000	600,000
Cost of Goods sold	70% of sales	490,000	595,000	350,000	315,000	385,000	420,000	437,500	420,000
Cash paid on goods purchased in the same month	20% of goods purchased in the current month	98,000	119,000	70,000	63,000	77,000	84,000	87,500	84,000
Cash paid on goods purchased in the next month	40% of previous month purhase		196,000	238,000	140,000	126,000	154,000	168,000	175,000
Cash paid on good purchased 2 months later	40% of the pre-previous months purchase			196,000	238,000	140,000	126,000	154,000	168,000
Total Cash outflow for purchase of goods		98,000	315,000	504,000	441,000	343,000	364,000	409,500	427,000

Cash paid for purchase of goods -

January - K504,000

February - K441,000

March - K343,000

April - K364,000

May - K409,500

June - K427,000.