Question

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible. Projected sales for December, January, and February are $60,000, $85,000 and $95,000, respectively. The February expected cash receipts from all current and prior credit sales is:  $57,000  $61,200  $66,400  $80,750  $90,250

Answer 1

Answer:

$61,200

Explanation:

The computation of the cash receipts in the February month is shown below:

= February credit sales × credit sales percentage × collection percentage  +  January credit sales × credit sales percentage × collection percentage   +  December credit sales × credit sales percentage × collection percentage  

= $95,000 × 80%  20% + $85,000 × 80% 50% + $60,000 × 80% × 25%

= $15,200 + $34,000 + $12,000

= $61,200

The cash sale is 20% so the credit sales would be 80% As the total sales includes both the credit sales and the cash sales