Caprice Corporation is a wholesaler of industrial goods Data regarding the store
ID: 3006460 • Letter: C
Question
Caprice Corporation is a wholesaler of industrial goods Data regarding the store's operations follow Sales are budgeted at $270, 000 for November. $280, 000 for December, and $260, 000 for January Collections are expected to be 65% in the month of sale. 32% in the month following the sale, and 3% uncollectible The cost ol goods sold is 75% of sales. The company desires an ending morchandiso inventory equal to 45% ot the following month's cost of goods sold Payment for merchandise is made rn the month following the purchase The November beginning balance in the accounts receivable account is $62, 000 The November beginning balance in the accounts payable account is $249, 000 Required: a. Prepare a Schedule of Expected Cash Collections for November and December b. Prepare a Merchandise purchases Budget for November and DecemberExplanation / Answer
b.
Cost of goods is 75% of sales.
Sales are budgeted $270,000 for November and $280,000 for December.
So, Cost of goods sold for November = 75% * ($270,000) = $202,500
And Cost of goods sold for December = 75% * ($280,000) = $210,000
Desired ending merchandise inventory
For November, 45% * $210,000 = $94,500
For December, 45% * 75 % * $260,000 = $87,750
Therefore, total needs for November = $202,500 + $94,500 = $297,000
And total needs for December = $210,000 + $87,750 = $297,750
Beginning merchandise inventory,
For November = 45% * $202,500 = $91,125
For December = 45% * $210,000 = $94,500
Therefore, required purchases are = total needs – beginning merchandize inventory
For November, $297,000 - $91,125 = $205,875
For December, $297,750 - $94,500 = $203,250
Mercchandize purchases budget November December Budgeted cost of goods sold $202,500 $210,000 Add Desired ending merchandizing inventory $94,500 $87,750 Total needs $297,000 $297,750 Less Beginning merchandize inventory $91,125 $94,500 Required purchases $205,875 $203,250