Question

In: Accounting

Amira, the owner of a music equipment shop wanted to have a sales budget for the...

  1. Amira, the owner of a music equipment shop wanted to have a sales budget for the next three months. She asked her assistant Dina to do the job. After consulting with friends in the same business, Dina estimated February revenues to be $30,000. She expects revenues to increase by $3,000 per month in March and April. Dina also expects that 60% of sales to be cash and 40% of sales to be on credit. Sales on credit are expected to be collected as follows: 30% in the month of sale and 70% in the month following the sales.

Required:

Based on the above information, calculate the expected cash collection for the month of April

Solutions

Expert Solution

Sales Budget for the three months are given , i.e for february sales = $ 30,000 and for each next months $3000 of sales is increased.

i.e sales for March = $30,000 + 3000 = $33,000 and

sales for April = March month sale + $ 3000 = $ 33000 + 3000 = $ 36000.

The schedule of cash collection will be as follows:

February march April
Sales for the months 30000 33000 36000
Cash Sales @60% 18000 19800 21600
Credit sales @ 40% 12000 13200 14400
Cash Collection schedule :
Cash sales received in same month 18000 19800 21600
Credit sales of the month received in same month @ 30% of credit sales 3600 3960 4320
Credit sales of Previous month receipt in next month @70% 0 8400 9240
( 12000 * 70%) ( 13200 * 70%)
Expected cash collection 21600 32160 35160

Thus,

The expected cash collection for the month of April = $ 35,160.

In shortcut : Cash collection in April = 60% of 36000 as cash sales + 30% of $ 14,400 as credit sales receipt in same month + 70% of $ 13200 as credit sales of march month

i.e $ 21600 + $ 4320 + $ 9240 = $ 35,160


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