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.
