Question

Shadee Corp. expects to sell 600 sun visors in May and 380 in June. Each visor sells for $11. Shadee’s beginning and ending finished goods inventories for May are 90 and 55 units, respectively. Ending finished goods inventory for June will be 65 units.

It expects the following unit sales for the third quarter:      

July	515
August	440
September	460

Sixty percent of Shadee’s sales are cash. Of the credit sales, 50 percent is collected in the month of the sale, 38 percent is collected during the following month, and 12 percent is never collected.

Required:

Calculate each of Shadee’s total cash receipts for August and September. (Do not round your intermediate calculations. Round your answers to the nearest whole dollar.)

Answer 1

Cash receipt for August:

Expected august sales = 440 x 11 = 4840.

In this 60% are cash sales i.e., Cash collected = 4840 x 60/100 = $2904

Credit sales = 4840 - 2904 = $1900

Of the credit sales 50% cash is collected in the month of august i.e., cash receipt in august = 1900 x 50/100 = $950.

In the month of July credit sales = 515 x 11 x 40% = $2266. Of this $2266 38% will be collected in August. So cash receipt in august for sales in july = 2266 x 38% = $861.

So total cash receipt in august = $2904 + $950 + $861 = $4715

Cash receipt for September:

1. Cash sales for september = 460 x 11 x 60% = $3036

2. Credit sales = 460 x 11 x 40% = $2024. Of this $2024, 50% will be collected in september. So cash receipt for september in respect of credit sales = 2024 x 50% = $1012

3. Credit sales in the month of august = $1900 and 38% of this is collected in september. So cash receipt for september for august sales = 1900 x 38% = $722.

So the total cash receipt for september = $3036 + $1012 + $722 = $4770