Question

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts from all current and prior credit sales is $80,500.

Answer 1

Answer:

64,400

Explanation:

The March expected cash receipts is shown below:

Based on January month

= Projected sales × credit percentage × collection percentage

= $75,000 × 80% × 30%

= $18,000

Based on February month

=  Projected sales × credit percentage × collection percentage

= $92,000 × 80% × 50%

= $36,800

Based on March month

= Projected sales × credit percentage × collection percentage

= $60,000 × 80% × 20%

= $9,600

So, the expected cash receipts on march month is

= $18,000 + $36,800 + $9,600

= 64,400

Since the 20% represents cash sales so 80% is credit sales