Ruiz Company’s budget includes the following credit sales for the current year: September, $158,000; October, $149,000; November, $133,000; December, $170,000. Credit sales are collected as follows: 10% in the month of sale, 60% in the first month after sale, and 30% in the second month after sale. How much cash can the company expect to collect in December as a result of current and past credit sales?
Question
Ruiz Company’s budget includes the following credit sales for the current year: September, 149,000; November, 170,000. Credit sales are collected as follows: 10% in the month of sale, 60% in the first month after sale, and 30% in the second month after sale. How much cash can the company expect to collect in December as a result of current and past credit sales?
Solution
To calculate the cash the company can expect to collect in December, we need to consider the collection pattern of credit sales.
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10% of December sales: This is the portion of December sales that will be collected in December itself.
Calculation: 10/100 * 17,000
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60% of November sales: This is the portion of November sales that will be collected in December, which is the first month after the sale.
Calculation: 60/100 * 79,800
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30% of October sales: This is the portion of October sales that will be collected in December, which is the second month after the sale.
Calculation: 30/100 * 44,700
By adding these three amounts together, we can find out how much cash the company can expect to collect in December.
Total cash collection in December = 79,800 (from November sales) + 141,500
So, the company can expect to collect $141,500 in December as a result of current and past credit sales.
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