The question says
Spears makes gross sales of $40,000 per month, of which 10% are for cash, the rest on
credit.
Experience shows that the credit sales are received as follows:
Receivables paying
within one month 40%
within two months 50%
Settlement discounts (for payment within one month) 4%
What will be the total expected cash receipts in any month?
A $35,824
B $36,400
C $38,560
D $40,000
The text book answer is
Cash sales 10% of $40,000 4,000
Receivables
$36,000 × 40% × 96% 13,824
$36,000× 50% 18,000
––––––
35,824
––––––
But after working out I found out it could be like the following way
Details % Value Case1 Case 2
Without any discount If we go for Discount
Sales Value 100% 40,000.00
Payment terms Discount
Cash sales on cash on delivery 10% 10% 4,000.00 0% 4,000.00 No discount because cash on delivery
First month 40% 16,000.00 4% 15,360.00 One month discount
Second Month 50% 20,000.00 4% 19,200.00 Final Payment
40,000.00 40,000.00 38,560.00
But in books they pay only 89.56% and losing 10.5% 35,824.00 89.56%
How it is right?
Please I am able to type only like this in this question bar
PLEASE ANSWER IT
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Budget preparations
6y ago#1Where did you find this question? If it is in the BPP Revision Kit then please give me to number of the question.
The question says that 10% of the sales are for cash, and therefore the sales on credit must be the remaining $36,000.
40% of these $36,000 pay in 1 month and therefore get the 4% discount (so only pay 96% of the amount).
50% of the $36,000 pay in 2 months and therefore do not get the discount (so pay the full amount).
Presumably the remaining 10% of the $36,000 never end up paying (we have no choice but to assume that from the wording of the question).
You have taken 40% and 50% of the full $40,000, but that is not what the question says.
Also, you seem to be giving the discount to those who pay in two months, but that it not the case.
You have no need to write 'please answer it' in capital letters - I always answer questions in this forum :-)
Dear Tutor
I have some issues understanding the question
What does "In ANY month"
What will be the total expected cash receipts in any month?
I can treat that I a calculation answer for the 1st month (so will not include AR collected in the 2d month), or I would treat I calculate it only for the 3d month, so I will only include the discount, wo any AR...
I am desperate with this paper.... to much assuming
2y ago#3The cash receipts will be the same in every month.
They have always been selling $40,000 a month - it is not as if they are just starting to sell.
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