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hi there, I have a doubt about this exercise.
EXERCISE TEST
BDL plc is currently preparing its cash budget for the year to 31 March 20X8. An extract from its sales budget for the same year shows the following sales values.
$
March 60,000
April 70,000
May 55,000
June 65,00040% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in the month
after sale and take a 2% discount; 27% are expected to pay in the second month after the sale, and the
remaining 3% are expected to be bad debts.SOLUTION
40% of May sales for cash (40% x $55,000) 22,000
70% of April credit sales less 2% discount (70% x 60% x $70,000 x 98%) 28,812
27% of March credit sales (27% x 60% x $60,000) 9,720
60,532what is not clear to me is: why march and april are multipled per 60%. The text says cash should be 40%of sales, so I was expecting to calc them. eg. (70% x 40% x $70,000 x 98%) .
Any help would be really appreciated
thanksmoreover: why 40% of may sales are expected to be for cash.
it is calculated for current month? the text says receipts are paid next month after sales! should not be considered at all!I will answer this, but as I told you before, you must in future ask in the Ask the Tutor Forum if you want me to answer!
The question says that 40% of sales are for cash.
So in March they receive 40% of March sales, in April 40% of Aprils sales and so on.
The other 60% are on credit.
So 60% of March sales are on credit . 60% of Aprils sales are on credit and so on.
Of the sales on credit, 70% are one month later.
So 60% of March sales are on credit, and 70% of those are received in April (less the discount). 27% of those 60% are received two months later, in May; and 3% of those 60% are not received at all because they are bad debts.
The same thing happens for each month.
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