Question

10-20 Royal Cigar Company is preparing a budget for cash collections. Its sales for November and December are estimated as $90,000 and $100,000, respectively. Past practice indicates that sales in any given month are collected as follows: month of sale, 75%; month following the month of sale, 20%; uncollectible accounts, 5%. The company allows a 2% discount for cash collections in the month of sale. What is the net cash estimated to be collected in December

Answer 1

Answer:

$91,500

Explanation:

Given that cash collection pattern is as follows; month of sale, 75%; month following the month of sale, 20%; and a 2% discount for cash collections in the month of sale, it means that cash estimated for collection in December will include;

• 75% sales in December (net of the 2% discount to be given)
• 20% sales in November

Discount for December cash collection

= 2% * 75% * $100,000

= $1500

Hence, net cash estimated to be collected in December

= 75% * $100,000 + 20% * 90,000 - $1500

= $75,000 + $18,000 - $1500

= $91,500