Question

The following is the sales budget for Profit, Inc., for the first quarter of 2018:

	January			February			March
Sales budget	$	214,000		$	234,000		$	257,000

Credit sales are collected as follows:

60 percent in the month of the sale

25 percent in the month after the sale

15 percent in the second month after the sale

The accounts receivable balance at the end of the previous quarter was $98,000 ($68,000 of which was uncollected December sales).

a.	Calculate the sales for November. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	Calculate the sales for December. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	Calculate the cash collections from sales for each month from January through March. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

Given that,

Sales in Jan = $214000

Sales in Feb = $234000

Sales in March = $257000

Credit sales are collected as follows:
60 percent in the month of the sale
25 percent in the month after the sale
15 percent in the second month after the sale

The accounts receivable balance at the end of the previous quarter was $98,000 ($68,000 of which was uncollected December sales).

Accounts receivable for last quarters include,

40% of Dec + 15% of Nov

So, 40% of Dec sales = 68000
=> Sales in Dec = 68000/0.4 = $170000

15% of Nov sales = 98000 - 68000 = $30000

=> Nov Sales = 30000/0.15 = $200000

a). Sales for November = $200000

b). Sales for December = $170000

c). Cash collection in January = 60% of Jan + 25% of Dec + 15% of Nov = 0.6*214000 + 0.25*170000 + 0.15*200000 = $200900

Cash collection in February = 60% of Feb + 25% of Jan + 15% of Dec = 0.6*234000 + 0.25*214000 + 0.15*170000 = $219400

Similarly, Cash collection in March = 60% of March + 25% of Feb + 15% of Jan = 0.6*257000 + 0.25*234000 + 0.15*214000 = $244800