Information pertaining to Yekstop Corp.'s sales revenue is presented below:
8,000 Credit sales 288,000 450,000 234,000 Total sales$384,000 $575,000 $312,000
Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices.Budgeted cash payments in December for November inventory purchases by Yekstop Corp. are:
$221,445
1. November sales, at cost = ($384,000 × 60%) = $230,400
2. Desired November Beginning Inventory, at selling prices = (75% × $384,000) = $288,000
3. Desired November Beginning Inventory, at cost = $288,000 × 60% = $172,800
4. Desired November Ending Inventory, at selling prices = (75% × $575,000) = $431,250
5. Desired November Ending Inventory, at cost = $431,250 × 60% = $258,750
6. Total budgeted inventory purchases in November = November sales, at cost + Desired ending inventory (at cost) ? Beginning inventory (at cost) = $230,400 + $258,750 ? $172,800 = $316,350
7. Budgeted cash payments in December for November's inventory purchase = $316,350 × 70% = $221,445
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