10-35 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 $100,000 $100,000 $200,000 November $120,000 $150,000 $270,000 December $80,000 $90,000 $170,000

Cash Sales Credit Sales Total

Past experience shows that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 65% are collected in the month of sale; the remaining 35% are collected in the month following the month of sale. Customers are granted a 2% discount for payment within ten days of billing. Approximately 80% of collectible credit sales take advantage of the cash discount. Inventory purchases each month are 100% of the cost of the following months projected sales. (The gross profit rate for Dyson is approximately 30%.) All merchandise purchases are made on credit, with 25 % 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 Credit Sales Collection Collected month of Sale Collected following month Discount for early payment %age of sales collected early Inventory purchases as a %age of cost Gross profit Inventory paid in purchase month Remainder paid following month 5% 65% 35% 2% 80% 100% 30% 25% 75%

Requirements 1. Calculate the budgeted total cash receipts for November and December. 2. Calculate budgeted cash payments for November and December.

10-36 DeVaris Corporation's budget calls for the following sales for next year: Quarter 1 Quarter 2 45,000 units 38,000 units Quarter 3 Quarter 4 34,000 units 48,000 units

Each unit of the product requires 3 pounds of direct material. The company's policy is to begin each quarter with an inventory of the product equal to 10% of that quarter's sales requirements and an inventory of direct materials equal to 20% of that quarter's direct materials requirements for production. Direct Materials Inventory requirement as a percentage of product Direct Materials inventory as a percentage need for production 3 pounds 10% 20%

Required: Determine the production and materials purchases budgets for the second quarter.

10-43 Esplanade Company's credit sales have the following historical pattern: 70% 15% 10% 4% 1% Collected in the month of sale Collected in the first month after sale Collected in the second month after sale Collected in the third month after sale Uncollectible

These sales on open account (credit sales) have been budgeted for the last six months in 2010: July August September October November December $60,000 $70,000 $80,000 $90,000 $100,000 $85,000

1) Determine the estimated total cash collections from accounts receivable during October 2010. 2) Compute the estimated total cash collections during the fourth quarter from credit sales of the fourth quarter.

Chapter 10 10-35 Budgeted Cash Receipts and Disbursements 1. Budgeted Cash Receipts: November: Cash sales Collection of accounts receivable: ($100,000 x 0.95) x 0.35 x 0.80 x 0.98 ($100,000 x 0.95) x 0.35 x 0.20 ($150,000 x 0.95) x 0.65 x 0.80 x 0.98 ($150,000 x 0.95) x 0.65 x 0.20 December: Cash sales Collection of accounts receivable: ($150,000 x 0.95) x 0.35 x 0.80 x 0.98 ($150,000 x 0.95) x 0.35 x 0.20 ($ 90,000 x 0.95) x 0.65 x 0.80 x 0.98 ($ 90,000 x 0.95) x 0.65 x 0.20 2. Budgeted Cash Disbursements: November: ($170,000 x 0.70) x 0.25 ($270,000 x 0.70) x 0.75 December: ($200,000 x 0.70) x 0.25 ($170,000 x 0.70) x 0.75 = = = = $29,750 $141,750 $35,000 $89,250 = = = = = = = = = = $120,000 $26,068 $6,650 $72,618 $18,525 $80,000 $39,102 $9,975 $43,571 $11,115

$243,861

$183,763

$171,500 $124,250

Chapter 10 10-36 Production and Materials Purchases Budgets Production Budget: Budgeted sales Desired ending inventory (10%) Total units needed Beginning inventory Total units to produce 2nd Quarter 38,000 + 3,400 41,400 3,800 37,600 3rd Quarter 34,000 + 4,800 38,800 3,400 35,400

Budgeted Purchases of Direct Materials for the Second quarter: Budgeted production Direct materials per unit Direct materials needed in production Desired ending inventory of direct materials (20% of 106,200) Total direct materials needed Beginning inventory of DM (20% of 112,800) Budgeted purchases of direct materials (lbs.) 2nd Quarter 37,600 x 3 112,800 + 21,240 134,040 22,560 111,480 3rd Quarter 35,400 x 3 106,200

Chapter 10 10-43 Collection of Accounts Receivable 1. Month of Sale October September August July Total Credit Sales $90,000 80,000 70,000 60,000 % to be Collected in October 70% 15% 10% 4% Budgeted Cash Collection In October $ 63,000 12,000 7,000 2,400 $84,400 Budgeted collection in the 4th quarter from Sales in the 4th Quarter $ 63,000 13,500 10% November December 100,000 85,000
th

Estimated Total Cash Collections in October 2. Month of Sale October Amount of Credit Sales $ 90,000 % Collected in Oct. Nov. Dec. 70% 15% 70% 15% 70% Total budgeted cash collections in the 4 quarter from credit sales made in the 4th quarter

9,000 70,000 15,000 59,500 $230,000