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Hi John,
Don’t really understand why we lose so much money in the following question and answer, regarding cash budget.
Sales 40,000
Cash Sales 10% in month of sale
40% in the following month (Discount of 4% paid for early settlement within the first month)
50% in 2nd month.Total cash receipts expected in any month will be
a 35,824
b 36,400
c 38,560
d 40,000Answer given in Kaplan Book is “A” 35,824
I’m having trouble understanding why were losing 4,176 in cash by only giving a 4% discount out of a sale of 40,000
Thanks in advance
Kind RegardsAssuming that you have copied the whole of the question correctly, then Kaplan have either mistyped the question or have made a mistake.
I cannot check myself because I do not have Kaplan books. Do they not show any workings with their answer (which might give a clue as to the mistyping 🙂 )
If it is a past exam question then tell me the date and question, because I do have those and so I could then check.
Thanks for the reply,
The question is in a Kaplan MA2 exam Kit 2018, Page 75 in Cash Management.
Iv’e double checked everything and typed as exact from within the book,
The workings they show for the answer are as follows,
Cash Sales 10% of $40,000 4,000
Receivables
$36,000 x 40% x 96% in 1st month 13,824
x 50% in 2nd month 18,000Total 35,824
Thanks again.
Well I can see what they have done, but it is wrong.
They have said that because 10% (i.e. $4000) are cash sales, then the credit sales are $36,000. That is fine.
However, to then take 40% of $36,000 (less the discount) as being the cash received in one month is not correct because that is not what the question says.
Also, of course, even if it had said that 40% and 50% of the credit sales were received in 1 and 2 months, they would have to have also explained what happened to the remaining 10% of the credit sales!!! (Presumably irrecoverable, but they can’t expect you to assume that without it being written.)On the wording of the question, the correct answer is 4,000 + (40,000 x 40% x 96%) + (40,000 x 50%) = 39,360.
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