Moorcroft Company’s budgeted sales and direct materials purchases are as follows: April May June
Budgeted Sales $300,000 320,000 370,000
Budgeted D. M. Purchases $45,000 54,000 60,000
Moorcroft’s sales are 40% cash and 60% credit. Credit sales are collected 30% in the month of
sale, 40% in the month following sale, and 26% in the second month following sale; 4% are
uncollectible. Moorcroft’s purchases are 50% cash and 50% on account. Purchases on
account are paid 40% in the month following the purchase and 60% in the second month
following the purchase.
Instructions
(a) Prepare a schedule of expected collections from customers for June.
Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Challenge Exercises (For Instructor Use Only)
(b) Prepare a schedule of expected payments for direct materials for June.
(c) Moorcroft’s assistant controller suggested that Moorcroft hire a part time collector to
encourage customers to pay more promptly and to reduce the amount of uncollectible
accounts. Sales are still 40% cash and 60% credit but the assistant controller predicted
that this would cause credit sales to be collected 30% in the month of the sale, 50% in
the month following sale, and 18% in the second month following sale; 2% are
uncollectible.
Prepare a schedule of expected collections from customers for June.
How did these changes impact cash collections? Would it be worth
paying the collector $1,000 per month?
(d) The assistant controller also suggested that the company switch their purchases to 40%
cash and 60% on account to help stretch out their cash payments. There is no
additional interest charge to do this and Moorcroft is still paying their bills on time. There
is no change to the company’s payment pattern.
Prepare a schedule of expected payments for direct materials for June.
How did these changes impact the cash payments for June? Copyright © 2015 John Wiley & Sons, Inc. Weygandt, Accounting Principles, 12/e, Challenge Exercises (For Instructor Use Only)