Question

Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $280,000 for November, $290,000 for December, and $270,000 for January. Collections are expected to be 60% in the month of sale and 40% 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 $63,000. The November beginning balance in the accounts payable account is $250,000. 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 and Explanation:

a. The preparation of Schedule of Expected Cash Collections for November and December is shown below:-

Schedule of Expected Cash Collections

for the month of November and December

Particulars                      November              December

Accounts receivable     $63,000

Sales                               $280,000             $290,000

Expected cash collection

in the month of sale 60%

collection                        $168,000                $112,000

                                      ($280,000 × 60%) ($280,000 × 40%)

Next month 40%

cash collection                                                $174,000

                                                                  ($290,000 × 60%)

Total cash collection    $231,000                 $286,000

b. The Preparation of Merchandise Purchases Budget for November and December is shown below:-

Particulars                 November      December    January

Cost of goods sold a

(80% of sale)               $224,000    $232,000       $216,000

                           ($280,000 × 80%) ($290,000 × 80%) ($270,000 × 80%)

Add: Ending

inventory b                    $92,800           $86,400

                                  ($232,000 × 40%) ($216,000 × 40%)

Total inventory             $316,800          $318,400

(c = a + b)

Less: Opening inventory d $89,600          $92,800

                                  ($224,000 × 40%)

Material to be

purchased                          $227,200         $225,600

(e = c - d)