Question

Here is a forecast of sales by National Bromide for the first 4 months of 2017 (figures in thousands of dollars):

Month:	1			2			3			4
Cash sales		29			38			32			28
Credit sales		170			190			160			140

On average, 50% of credit sales are paid for in the current month, 30% in the next month, and the remainder in the month after that. What are the expected cash collections in months 3 and 4? (Enter your answers in whole dollars not in thousands of dollars.)

Answer 1

Solution :

The expected cash collections in Months 3 is

= Cash sales of Month 3 + ( Credit sales of Month 1 * 20 % ) + ( Credit sales of Month 2 * 30 % ) + ( Credit sales of Month 3 * 50 % )

= $ 32,000 + ( 170,000 * 20 % ) + ( 190,000 * 30 % ) + ( 160,000 * 50 % )

= $ 32,000 + $ 34,000 + $ 57,000 + $ 80,000

= $ 203,000

The expected cash collections in Month 4 is

= Cash sales of Month 4 + ( Credit sales of Month 2 * 20 % ) + ( Credit sales of Month 3 * 30 % ) + ( Credit sales of Month 4 * 50 % )

= $ 28,000 + ( 190,000 * 20 % ) + ( 160,000 * 30 % ) + ( 140,000 * 50 % )

= $ 28,000 + $ 38,000 + $ 48,000 + $ 70,000

= $ 184,000

Thus

The Expected cash collection in Month 3 = $ 203,000

The Expected cash collection in Month 4 = $ 184,000