Question

Assume Durango Co. has sales of $100,000 for the month of November. The company expects sales to grow 10% each month. Durango Co. collects 50% of sales in the month of sale and 50% the month after sale. What should Durango Co. project for cash collections in December?

Answer 1

$105,000

Step-by-step explanation:

Given that,

Sales in November = $100,000

Expected growth rate of sales = 10% each month

50% of sales in the month of sale and 50% the month after sale.

Sales in December = Sales in November + 10% of sales in November

= $100,000 + (0.1 × $100,000)

= $100,000 + $10,000

= $110,000

Therefore, the cash collections in the month of December includes 50% of sales in December and 50% of sales in November.

It is calculated as follows:

= 50% of sales in December + 50% of sales in November

= (0.5 × $110,000) + (0.5 × $100,000)

= $55,000 + $50,000

= $105,000