Question

Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, cash collections for December should be:

Answer 1

Answer: $136,375

Explanation:

Going by the collections pattern of the company, there will be collections for 3 months in December being October, November and December.

December collections will be:

= (50% * December credit sales) + (30% * November Credit sales) + (15% * October credit sales) + December cash sales

December credit sales = 75% * 130,000 = $97,500

November credit sales = 75% * 170,000 = $127,500

October credit sales = 75% * 150,000 = $112,500

December collections are:

= (50% * 97,500) + (30% * 127,500) + (15% * 112,500) + (25% * 130,000)

= $136,375