Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 36

Budgeted Cash Receipts and Cash Payments 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	November	December
Cash sales	$100,000	$120,000	$ 80,000
Credit sales	100,000	150,000	90,000
Total	$200,000	$270,000	$170,000

Past experience shows that 5 percent of credit sales are uncollectible. Of the credit sales that are collectible, 65 percent are collected in the month of sale; the remaining 35 percent are collected in the month following the month of sale. Customers are granted a 2 percent discount for payment within 10 days of billing. Approximately 80 percent of collectible credit sales take advantage of the cash discount.

Inventory purchases each month are 100 percent of the cost of the following month’s projected sales. (The gross profit rate for Dyson is approximately 30 percent.) All merchandise purchases are made on credit, with 25 percent paid in the month of purchase and the remainder paid in the following month. No cash discounts for early payment are in effect.

Required

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

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2. Calculate budgeted cash payments for November and December (budgeted total sales for January of the coming year = $200,000).

Step 1 of 4

Cash disbursement is the cash payment made by the individual or the company is a specified period of time which could be week, month, year etc. These payments are made against the purchases made by firm or the operating expense which occur.