Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.$\begin{array}{lrr}
&\text { June }&\text {July }&\text {August }\
&\text { (Actual)}&\text { (Budged) }&\text { (Budget) }\
\text { Cash sales. } &£ 80,000& £ 100,000 &£ 60,000\
\text { Credit sales. } &\underline{240,000} &\underline{360,000} &\underline{180,000}\
\text {Total sales. } &\underline{£ 320,000 }&\underline{£ 460,000} &\underline{£ 240,000}\\
\end{array}$

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 30% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.
- Noskey Corporation's budgeted total cash receipts in August are

Question

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.$\begin{array}{lrr}
&\text { June }&\text {July }&\text {August }\
&\text { (Actual)}&\text {  (Budged) }&\text { (Budget) }\
  \text { Cash sales. } &£ 80,000& £ 100,000 &£ 60,000\
 \text {  Credit sales.  } &\underline{240,000} &\underline{360,000} &\underline{180,000}\
 \text {Total sales.  } &\underline{£ 320,000 }&\underline{£ 460,000} &\underline{£ 240,000}\\
\end{array}$

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 30% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.
- Noskey Corporation's budgeted total cash receipts in August are

Quizplus · Accepted Answer

The budgeted total cash receipts in August can be calculated as follows:
Total Sales Revenue = £320,000
Credit Sales Revenue = 70% x £320,000 = £224,000
Collectible Credit Sales = (100% - 5%) x £224,000 = £212,800
Cash Receipts in the month of sale = 60% x £212,800 = £127,680
Cash Receipts in the month following sale = 40% x £212,800 = £85,120
Total Cash Receipts = £127,680 + £85,120 = £212,800
Payments for Inventory Purchases = (£240,000 x 30%) = £72,000
Accounts Payable at the end of July  = (£240,000 - £72,000) x 75% = £132,000 x 75% = £99,000
Total Cash Disbursements = (£72,000 x 25%) + (£72,000 x 75% x 25%) + (£99,000 x 75%) = £18,000 + £13,500 + £74,250 = £105,750
Budgeted total cash receipts in August = Total Cash Receipts - Total Cash Disbursements = £212,800 - £105,750 = £107,050
Adding Accounts Receivable at the end of July of £192,350 gives us a total cash collections of £299,400. Therefore, the best choice is C.

Noskey Corporation Is a Merchandising Firm Management Estimates That 5% of Credit Sales Are Uncollectible