Question

Topez Service anticipates the following sales revenue over a​ five-month period:

	November	December	January	February	March
Sales Revenue	$16,200	$10,800	$15,400	$12,200	$14,800

The​ company's sales are 40% cash and 60% credit.

Its collection history indicates that credit sales are collected as​ follows:

25% in the month of the sale

50% in the month after the sale

20% two months after the sale

5% are never collected

How much cash will be collected in​ January? In​ February? In​ March? For the quarter in​ total?

Answer 1

Cash collected in a month includes 40% of sales(cash sales) of the month, 25% of credit sales of the month, 50% of credit sales of previous month and 20% of credit sales of two months before

Cash collected in January = (15400*40%)+ {(15400*60%)*25%}+{(10800*60%)*50%}+{(16200*60%)*20%}

= 6160+2310+3240+1944

= $13,654

Cash collected in February = (12200*40%)+{(12200*60%)*25%}+{(15400*60%)*50%}+{(10800%60%)*20%}

= 4880+1830+4620+1296

= $12,626

Cash collected in March = (14800*40%)+{(14800*60%)*25%}+{(12200%60%)*50%}+{(15400%60%)*20%}

= 5920+2220+3660+1848

= $13,648

Total cash collected in the quarter= 13,654+12,626+13,648

Total cash collected in the quarter= $39,928