Problem 3 LRF Company LRF Companys budgeted sales and direct materials purchases

Question

Problem 3

LRF Company

LRF Companys budgeted sales and direct materials purchases are as follows. LRFs sales are 30% cash and 70% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible. LRFs purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month of purchase, and 60% in the month following purchase. Instructions: Prepare a schedule of expected collections from customers for March. Prepare a schedule of expected payments for direct materials for March

Explanation / Answer

Collections in March

March Cash sales 270,000 x 30% = 81000

March credit sales =270000 x 70% x 10% = 18900

Feb credit sales = 220000 x 70% x 50% = 77000

Jan credit sales = 200000 x 70% x 36% = 50400

Total collections in March = 227300

Payments in March

March cash purchases 40000 x 50% = 20000

March account purchases = 40000 x 50% x 40% = 8000

Feb account purchases = 36000 x 50% x 60% = 10800

Total payments = 38,800

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