Question

Here is a forecast of sales by National Bromide for the first 4 months of 2019 (figures in thousands of dollars): Month: 1 2 3 4 Cash sales 16 25 19 15 Sales on credit 105 125 95 75 On average, 60% of credit sales are paid for in the current month, 20% in the next month, and the remainder in the month after that. What are the expected cash collections in months 3 and 4

Answer 1

Answer:

National Bromide

The expected cash collections in months 3 and 4 are:

Month 3 = $122 ,000

Month 4 = $104,000

Explanation:

a) Data and Calculations:

(figures in thousands of dollars):

Months                        1             2          3          4

Cash sales                  16           25        19        15

Sales on credit         105          125       95       75

Collections of sales on credit:

60% current month  63            75       57       45

20% next month                       21        25       19

20% two months                                  21       25

Cash sales                16           25         19       15

Total collections      79           121     122     104

b) The credit sales are not collected in full until after two months or 60 days.  After classifying the cash collections on percentage basis, the cash sales for each month are added to ensure that the correct cash collections for the month are obtained.