Question

It is November 1 of Year 1. Sales for Kadan Company for November and December of Year 1 and January of Year 2 are forecasted to be as follows:

November, 400,000; December 600,000; January, 200,000

100% of sales are credit sales. Of these credit sales, 5% are collected during the month of sale, 25% in the following month, and 65% in the second following month; 5% are never collected. Total sales for September and October of Year 1 were 100,000 and 150,000, respectively. What is the forecasted amount of total cash collections in November of Year 1?

Answer 1

The total cash collections in november month will be 5% of sales in november, 65% of sales in September, and 25% of sales in October month.

5% of sales in november = 400,000 x 5%

5% of sales in November = $ 20,000.

65% of sales in September = 100,000 x 65%

65% of sales in September = $ 65,000.

25% of sales in October = 150,000 x 25%

25 % of sales in October = $ 37,500.

Total collection = 20,000 + 65,000 + 37,500

Total collection = $ 122,500.

Hence, $ 122,500 is the correct answer.

SUMMARY:

The forecasted amount of total cash collection in November month is $ 122,500.

Hence, $ 122,500 is the correct answer.