What would be the impact on the cash budget if 30% ( instead of 25%) of credit s

Question

What would be the impact on the cash budget if 30% ( instead of 25%) of credit sales is collected in the month of the sale? (Note this is the only change).

b. What would be the impact on the cash budget, if 90% ( instead of 80%) of the merchandise is paid in the month following the purchase?

Problem 22-6A (50 minutes) ONEIDA COMPANY Cash Budget For September, October, and November Cash receipts 159,250249,250338,100 Receipts from bank loan Total cash available Cash disbursements 100,000 264,250 348,500407,600 Payroll Rent Other expenses Repayment on bank loan Interest on bank loan* Total cash disbursements 100,000 217,000228,000 24,000 10,000 20,000 100,000 3,000 165,000 279.000 385.000 20,000 10,000 35,000 22,000 10,000 30,000 Interest at 12% on $100,000 for 3 months is $3,000. Supporting schedules Collections of credit sales* Aug. sales ($215,000)-[25%: 45%: 20%: 9%) Sept. sales ($250,000-25%: 45%: 20%) Oct. sales ($375,000 [25%: 45%) Nov. sales ($400,000)-25%) Total August $ 53,750 Septem- October Novem $ $ 19,350 50,000 93,750168,750 100,000 $53,750 $159,250 $249,25 $338,100 $ 96,750 62,500 112,500 August $ Septem- October Novem $100,000 Payments on credit purchases*" Aug. purchases ($125,000)-(0%: 80%: 20%) Sept. purchases ($240,000)-(0%: 80%: 20%) Oct. purchases ($225,000)-(0%: 80%) Nov. purchases ($200,000)-(0%) Total 0 48,000 0 180,000 0 192,000 $100,000 S217.00 $228.000

Explanation / Answer

Case 1 Collection of credit sale budget Month Sales 30% collection in same month 45% in next month 20% in next to next month 5% remaining Total collection Earlier collection Extra collection Aug 215000 64500 64500 53750 10750 Sep 250000 75000 96750 171750 159250 12500 Oct 375000 112500 112500 43000 268000 249250 18750 Nov 400000 120000 168750 50000 10750 349500 338100 11400 Now, in the given situation the collection is 30% in the same month instead of 25 % thereore the 5 % which was suppose to be collected in the next month now will be collected in same month of sale, this will increase the cash inflow and a co. may invest such collection anywhere and can enjoy the benefit of interest. collection of cash shall be change monthly Case 2 Payment of Credit purchase Month Purchase 0% payment in the year of purchase 90% in the following month 10% in remaining total payment Earlier total payment Extra Payment Aug 125000 0 0 0 0 Sep 240000 0 112500 112500 100000 12500 Oct 225000 0 216000 12500 228500 217000 11500 Nov 200000 0 202500 24000 226500 228000 -1500 Now, in this situation co. is paying extra cash in sep and oct as compare to earlier however in nov the co is paying less cash so the cash which is paid by co. could be utilise for some purpose of co. therefore here will be loss to co. of the interest.

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