Question

The Model Company is to begin operations in April. It has budgeted April sales of $70,000, May sales of $74,000, June sales of $80,000, July sales of $82,000, and August sales of $78,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. The Model Company is considering charging 1 1/2% on any balance that is not collected in the month following the month of sale. This charge would also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, and 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. Under this stricter credit policy, what is the amount of cash to be collected in July

Answer 1

Step-by-step explanation:

Computation of cash collection for July= $ 75,352

Revised Sales budgets as a result of change in policy

Cash Credit

Sales-April $ 70,000 *(100 % -7% ) = $ 65,100 $ 9,765 $ 55,335

Sales -May $ 74,000 *(100 % -7 %) = $ 68,820: $ 10.323 $ 58,497

Sales -Jun $ 80,000 *(100 % -7 %) = $ 74,400 $ 11,160 $ 63,240

Sales -Jul $ 82,000 *(100 % -7 %) = $ 76,260 $ 11,439 $ 64,821

Collections for the month of July

From July cash sales $ 11,439

From April sales : 3 % of credit sales of April $ 1,755

From May sales : 16 % of credit sales of May $ 10,118

From June sales : 80% of credit sales of June $ 51,857

Additional 1.5 % on amount collected in the second month

after sales ( $ 1,755 + $ 10,118) * 1.5 % ( $ 26 + $ 157) $ 193

Total collections for July $ 75,352