Question

Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales. 80 percent collected in the month of sale. 10 percent collected in the first month after sale. 5 percent collected in the second month after sale. 4 percent collected in the third month after sale. 1 percent uncollectible. The sales on account have been budgeted for the last seven months as follows: June $ 126,000 July 153,500 August 178,500 September 207,000 October 232,000 November 257,000 December 219,500 Required: 1. Compute the estimated total cash collections during October from credit sales. 2. Compute the estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter

Answer 1

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Cash collections from sales on account	OCTOBER	NOVEMBER	DECEMBER
80% of the current month sales	[ 80%*232000] =185600	[ 80%*257000 ] =205600	[ 80%*219500 ] =175600
10% of previous month sales	10%*207000 =20700	10%*232000 =23200	10%*257000 =25700
5% of sales made 2 month earlier	5%*178500 =8925	5%*207000 =10350	5%*232000 =11600
4% of sales made 3 months earlier	4%*153500 =6140	4%*178500 =7140	4%*207000 =8280
TOTAL CASH COLLECTION FROM CREDIT SALES	221365	246290	221180

ESTIMATED CASH COLLECTION DURING OCTOBER=221365

Total cash collections during the fourth quarter = 221365 + 246290 + 221180 = 688835