Moorcroft Companys budgeted sales and direct materials purchases are as follows: Budgeted Sales Budgeted D.M. Purchases April
Question:
Moorcroft Company’s budgeted sales and direct materials purchases are as follows:
Budgeted Sales | Budgeted D.M. Purchases | |||
April | $277,000 | $48,000 | ||
May | 336,000 | 59,000 | ||
June | 397,000 | 63,000 |
Moorcroft’s sales are 40% cash and 60% credit. Credit sales are collected 20% in the month of sale, 50% in the month following sale, and 26% in the second month following the sale; 4% are uncollectible. Moorcroft’s purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month following the purchase and 60% in the second month following the purchase.
Moorcroft’s assistant controller suggested that Moorcroft hire a part time collector to encourage customers to pay more promptly and to reduce the amount of uncollectible accounts. Sales are still 40% cash and 60% credit but the assistant controller predicted that this would cause credit sales to be collected 30% in the month of the sale, 50% in the month following sale, and 18% in the second month following sale; 2% are uncollectible.
Prepare a schedule of expected collections from customers for June. How did these changes impact cash collections?
Moorcroft Company Schedule of Expected Collections from Customers | ||||||||
Sales | April | May | June | |||||
April | $ | $ | $ | $ | ||||
May | ||||||||
June | ||||||||
Total Collections | $ | $ | $ |
Would it be worth paying the collector $1,000 per month?
It would /be would not be worth paying the collector $1,000 per month to improve the cash collections of the company |
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso