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A company has the following budgeted sales figures –
Month 1 – $90000
Month 2 – $105000
Month 3 – $120000
Month 4 – $10800080% of the sales are on credit and the remainder are paid in cash. Credit customers paying in the month after sale are given a discount of 1.5%. Credit customers normally pay within the following time frame.
1 month after the sales – 40% of the credit sales
2 months after the sale – 70% of the credit sales
3 months after the sale – 98% of credit sales.There is an exception that 2% of credit sales will become irrecoverable debts.
Calculate the total receipts expected in month 4.Sir for this question i am mainly confused for Month 1 sale and Month 2.
1 month after sale they receive 40% of the credit sales. 2 months after sale they must receive another 30% (so as to have 70% in total), and 3 months after sale they must receive another 28% (so as to have 98% in total).
Therefore for the credit sales in month 1, 40% is received in month 2, 30% is received in month 3, and 28% is received in month 4.
The same pattern is repeated for each following month.So…..in month 4, they will get cash sales of 20% of month 4 sales.
In addition they will receive 28% of month 1’s credit sales; 30% of month 2’s credit sales; and 40% of month 3’s credit sales.
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