The Dyson Company, a retailer, makes both cash and credit sales (i.e., sales on open account). Information
Question:
The Dyson Company, 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 | $100,000 | $120,000 | $80,000 |
Credit Sales | $100,000 | $150,000 | $90,000 |
Total | $200,000 | $270,000 | $170,000 |
Past experience shows that 5 percent of credit sales are uncollectible. Of the credit sales that are collectible, 65 percent are collected in the month of sale; the remaining 35 percent are collected in the month following the month of sale. Customers are granted a 2 percent discount for payment within 10 days of billing. Approximately 80 percent of collectible credit sales take advantage of the cash discount.
Inventory purchases each month are 100 percent of the cost of the following month's projected sales. (The gross profit rate for Dyson is approximately 30 percent.) All merchandise purchases are made on credit, with 25 percent paid in the month of purchase and the remainder paid in the following month. No cash discounts for early payment are in effect.
Credit Sales Uncollectible | 5% |
Credit Sales Collection | |
Collected month of Sale | 65% |
Collected following month | 35% |
Discount for early payment | 2% |
%age of sales collected early | 80% |
Inventory purchases as a %age of cost | 100% |
Gross profit | 30% |
Inventory paid in purchase month | 25% |
Remainder paid following month | 75% |
Required
1. Calculate the budgeted total cash receipts for November and December.
2. Calculate budgeted cash payments for November and December (budgeted total sales for January of the coming year =$200,000).
Step by Step Answer:
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins