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katovenus [111]
3 years ago
5

Moorcroft Company’s budgeted sales and direct materials purchases are as follows:

Business
1 answer:
SashulF [63]3 years ago
3 0

Answer:

Moorcroft Company

a) A Schedule of Expected Collections from Customers for June:

June Sales - 40% of $407,000 cash = $1,628,000

June Sales - 20% of 60% of $407,000 = $48,840

May Sales - 50% of 60% of $292,000 = $87,600

April Sales - 26% of 60% of $327,000 = $51,012

Total = $1,815,452

b) A Schedule of Expected Payments for Direct Materials for June:

June Purchases - 50% of $61,000 cash = $30,500

May Purchases - 40% of 50% of $51,000 = $10,200

April Purchases - 60% of 50% of $42,000 = $12,600

Total = $53,300

c- i)A Schedule of Expected Collections from Customers for June:

June Sales - 40% of $407,000 cash = $1,628,000

June Sales - 30% of 60% of $407,000 = $73,260

May Sales - 50% of 60% of $292,000 = $87,600

April Sales - 18% of 60% of $327,000 = $35,316

Total = $1,824,176

ii) These changes increased cash collections from $1,815,452 to $1,824,176, an increase of $8,724.00

iii) The uncollectible of credit sales was halved, reducing from $9,768 (4% of 60% of $407,000) to $4,884 (2% of 60% of $407,000) for June sales for example.

iv) It is certainly worth paying the collector $1,000 or more per month.

d-i) A Schedule of Expected Payments for Direct Materials for June:

June Purchases - 40% of $61,000 cash = $24,400

May Purchases - 40% of 60% of $51,000 = $12,240

April Purchases - 60% of 60% of $42,000 = $15,120

Total = $51,760

ii) The changes reduced the cash payments for June from $53,300 to $51,760, a difference of $1,540.

Explanation:

a) When sales are made on credit, the finances of the entity will be impacted.  While credit sales encourage more sales, there is the risk of uncollectible debts and short-term funding crisis due to non-receipt of payment from customers.

b) To manage this, companies introduce some incentives to encourage early payment, like cash discount.  They may also formalize the debt with a note receivable.  The note can also be sold for immediate cash.

c) Employing a collector to pursue receivables may be in the best interest of a company.  The collector intensifies pressure on the customers to pay.

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