The sales budget of Mulls Company for the fourth quarter of 2009 is as follows:

Question

The sales budget of Mulls Company for the fourth quarter of 2009 is as follows: October November December Sales $96,000 $72,000 $108,000 Sales are 20% cash, 80% credit. Cost of goods sold is 70% of total sales. Desired ending inventory for each month is equal to 25% of cost of goods sold for the following month. Collections on credit sales are as follows: 50% in the month of sale 30% in the month following sale 15% in the second month following sale 5% uncollectible October 1 inventory is $16,000. Expected sales for January 2010, are $84,000. Payments for inventory are 70% in the month following purchase and 30% two months following purchase. Compute the cash collections for December, 2009.

Explanation / Answer

cash collections for december 2009 = 0.2(108000)+0.5(0.8(108000)) + 0.3(0.8(72000)) + 0.15(0.8(96000)) = 21600 + $43,200 + $17,280 + $11,520 = $93,600 no purchases are considered and only cash received on cash sales and account receivable realised are taken but not the cash disbursements.

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