Question

The company's past records show collection of credit sales as 60% in the month of sale and the balance in the following month. If inventory units are sold for $25, the total cash collections on receivables in November will be

Answer 1

60%(25n) + 40%(25o) where n is the number of inventory units sold in November and o is the number of inventory units sold in October

Step-by-step explanation:

If n = number of units sold in November then our total receivables figure would be $25 * n = 25n. If we only collect 60% of sales in the month of sale then in November we will collect 60% of 25n = 60%(25n). If we also collect the balance on receivables in the following month, we will also collect the balance i.e. 100% - 60% = 40% of Octobers receivables in November therefore adding the 2 using the same reasoning:

Total cash collections on receivables in November will be 60%(25n) + 40%(25o) where n is the number of inventory units sold in November and o is the number of inventory units sold in October