Question

Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $390,000 for November, $360,000 for December, and $340,000 for January. Collections are expected to be 85% in the month of sale and 15% in the month following the sale. The cost of goods sold is 80% of sales. The company desires an ending merchandise inventory equal to 40% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. The November beginning balance in the accounts receivable account is $77,000. The November beginning balance in the accounts payable account is $320,000. Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December.

Answer 1

Answer a)

Schedule of Expected Cash Collections for November and December

	November	December
Sales	$        390,000	$        360,000
Schedule of Expected Cash Collections
Accounts Receivable	$          77,000
November sales (85% x $390,000;15% x $390,000)	$        331,500	$          58,500
December sales (85% x $360,000)		$        306,000
Total Cash collections	$        408,500	$        364,500

Answer b)

Merchandise Purchases Budget	November	December
Cost of Goods sold (80% x $390,000;80% x $360,000)	$        312,000	$        288,000
Add desired ending merchandise inventory (40% x $288,000; 40% x 80% x $340,000)
	$        115,200	$        108,800
Total needs	$        427,200	$        396,800
Less beginning merchandise inventory (40% x $312,000; 40% x $288,000)
	$        124,800	$        115,200
Required purchases	$        302,400	$        281,600