General Data 1. Sales are 25% cash, 75% credit 2. Of the credit sales 80% are co
ID: 2618565 • Letter: G
Question
General Data
1. Sales are 25% cash, 75% credit
2. Of the credit sales 80% are collected in the month following the month of sale and 20% in the second month following the sale.
3. Gross profit margin on sales averages 25% i.e., the COGS is 75% of sales
4. All inventory purchases are paid during the month in which they are made.
5. The store follows the policy of purchasing enough inventory each month to cover the following months sales at cost.
6. A minimum cash balance of $5,000 is to be maintained by the store.
7. A $15,000 dividend payment will be made in January.
8. The cash balance as of July 31 is $10400
9. Sales budget August $1400 Sept $26000 October 22,000 Nov 38000 Dec 48000 Jan 18000 Feb 16000
10. Monthly expenses wages Aug 1400 Sept 1600 Oct 1600 Nov 1800 Dec 1800 Jan 1400
Other monthly expenses rent 400 depreciation 120 other 1% of sales (paid as incurred)
What is the total expected cash inflow in Jan?
What is the total expected cash outflow for inventory In December?
What is the total expected cash outflow for January?
What will the accounts receivable be on January 31?
Explanation / Answer
Cash Inflow in January
Cash inflow in January = 25% of January sales + 80% of december credit sales + 20% of November credit sales
or, Cash inflow in January = 18000 x 25% + 48000 x 75% x 80% + 38000 x 75% x 20% = 39000
Cash outflow for inventory in December
Cash outflow for inventory = COGS for sales of next month or January = 75% of sales of january = 75% x 18000 = 13500 (may have to be entered as negative value since it is an outflow)
Cash outflow for January
Cash outflow for January = Inventory to be maintained for february + Dividend + Monthly expense wages + Rent + other expenses
or, Cash outflow for January = 75% x 16000 + 15000 + 1400 + 400 + 1% x 18000 = 28980
Accounts receivable on January 31
Accounts receivable = Credit sales of January + unrecovered credit sales of December (20%) = 75% x 18000 + 48000 x 75% x 20% = 20700
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