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The following data is relevant for questions 1 and 2.
MN Co currently sells its product for $20 but it is anticipated that there will be a price increase of 5% from 1 February. The sales quantities are expected to be as follows:
January 15,000 units
February 18,000 units
March 21,000 units
All sales are on credit and 60% of cash is received in the month following the sale and the remainder, two months after the sale.
1. What are the receipts from January and February sales that are received in March?
2. What is the receivable at the end first quarter?I don’t really understand this problem. I am trying to do this and what should I do next? Please explain to me. Thank you!
Answer:
January: Cost units=20*15,000= 300,000
February: increase of 5% from 1 February=> Cost units= (18,000*20) + [(18,000*20) *5%]= 378,000This question could not be asked in Paper FA. It is a Paper MA question (and I am guessing that maybe you have asked in the wrong forum).
The sales in January are 300,000. Of this, 60% is received in February and 40% is received in March. So the cash received in March is 40% x $300,000 = $120,000.
The sales in February are 18,000 x (20 + (5% x 20)) = $378,000. Of this, 60% is received in March and 40% is received in April. So the cash received in March is 60% x 378,000 = $226,800.
So the total cash received in March is 120,000 + 226,800 = $346,800.
Have you watched my free Paper MA lectures on cash budgets? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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