Question

Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales. 60 percent collected in the month of sale. 20 percent collected in the first month after sale. 15 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 $131,000 July 158,500 August 183,500 September 217,000 October 242,000 November 267,000 December 229,500 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

Solution:

Answer 1:

Estimated total cash collections during October from credit sales:

Month of sale	October	Calculations
June	0
July	$6,340	4% * $158,500
August	$27,525	15% * $183,500
September	$43,400	20% * $217,000
October	$145,200	60% * $242,000
Total cash collections	$222,465

.

Answer 2:

Estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter:

Month of sale	October	November	December	Total Fourth Quarter
October	$145,200 (60% * $242,000)	$48,400 (20% * $242,000)	$36,300 (15% * $242,000)	$229,900
November		$160,200 (60% * 267,000)	$53,400 (20% * $267,000)	$213,600
December			$137,700 (60% * $229,500)	$137,700
Total cash collections	$145,200	$208,600	$227,700	$581,200

Note:

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