Question

It is January 1 of Year 2. Sales for Harry Company for January, February, and March are forecasted to be as follows: January, $200,000; February $400,000; March, $500,000. 20% of sales are for cash. Of the credit sales, 10% are collected during the month of sale, 30% in the following month, and 60% in the second following month. TOTAL sales for November and December of Year 1 were $200,000 and $400,000, respectively. What is the forecasted amount of total CASH COLLECTIONS FROM SALES in January

Answer 1

Answer:

$248,000

Explanation:

Given that 20% of sales are for cash, Of the credit sales, 10% are collected during the month of sale, 30% in the following month, and 60% in the second following month. It means that credit sales is 80% of sales.

Cash collection for January will include 20% sales in January, 8% (10% * 80%) sales in January, 24% (30% *80%) sale in December and 48% (60% * 80%) of sales in November.

The forecasted amount of total CASH COLLECTIONS FROM SALES in January

= 20% * $200,000 + 8% * $200,000 + 24% * $400,000 + 48% * $200,000

= $40,000 + $16,000 + $96,000 + $96,000

= $248,000