Question

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)

Answer 1

To prepare the schedules of expected collections and payments, we calculate the amounts based on the given percentages and subtract uncollectible accounts. The impact of hiring a collector and switching purchase terms can be determined by comparing the new schedules with the original ones.

Step-by-step explanation:

To prepare a schedule of expected collections from customers for June, we need to calculate the amount of cash collected in each of the three collection months. First, we calculate the total credit sales for June. Then, we determine the collections for the three collection months based on the given percentages. Finally, we subtract the uncollectible accounts to find the expected collections. The schedule of expected payments for direct materials for June is prepared by calculating the cash payments and payments on account for the purchases made in June and the previous months.

Let's assume that the assistant controller's predicted collection percentages are accurate. We can use the predicted percentages to calculate the new schedule of expected collections from customers for June. To determine the impact on cash collections, we compare the new expected collections with the original expected collections. If the hiring of a part-time collector results in increased collections that exceed the cost of hiring the collector, it would be worth paying the collector $1,000 per month.

The impact of switching purchases to 40% cash and 60% on account can be seen by preparing a new schedule of expected payments for direct materials for June. By stretching out the cash payments, this change can affect the company's cash flow. To determine the impact on cash payments, we compare the new expected payments with the original expected payments.

Answer 2

a) Month Sales

April $300,000

May $320,000

June $370,000

Schedule of expected collections

For the month of June, 202x

Cash sales during June = $370,000 x 40% = $148,000

Collection from June's credit sales = $222,000 x 30% = $66,600

Collection from May's credit sales = $192,000 x 40% = $76,800

Collection from April's credit sales = $180,000 x 26% = $46,800

Total cash collections during June = $338,200

b) Month DM purchases

April $45,000

May $54,000

June $60,000

Schedule of expected cash payments for direct materials purchases

For the month of June, 202x

Cash purchases during June = $60,000 x 50% = $30,000

Cash payments for May's purchases = $27,000 x 40% = $10,800

Cash payments for April's purchases = $22,500 x 60% = $13,500

Total cash payments during June = $54,300

c) Month Sales

April $299,000

May $337,000

June $387,000

Schedule of expected collections

For the month of June, 202x

Cash sales during June = $370,000 x 40% = $148,000

Collection from June's credit sales = $222,000 x 30% = $66,600

Collection from May's credit sales = $192,000 x 50% = $96,000

Collection from April's credit sales = $180,000 x 18% = $32,400

Total cash collections during June = $343,000

It would be worth to pay the collector since the 2% reduction in uncollectible accounts is worth much more than the $1,000 that he/she earns.

d) Month DM purchases

April $45,000

May $54,000

June $60,000

Schedule of expected cash payments for direct materials purchases

For the month of June, 202x

Cash purchases during June = $60,000 x 40% = $24,000

Cash payments for May's purchases = $32,400 x 40% = $12,960

Cash payments for April's purchases = $27,000 x 60% = $16,200

Total cash payments during June = $53,160