Forecasting Collections. Here is a forecast of sales by National Bromide for the first 4 months of 2001 (figures in thousands of dollars):
Month: 1 2 3 4
Cash sales 15 24 18 14
Sales on credit 100 120 90 70
On average, 50 percent of credit sales are paid for in the current month, 30 percent in the next month, and the remainder in the month after that. What are expected cash collections in months 3 and 4?
To calculate the expected cash collections in months 3 and 4, we need to consider the pattern of credit sales and their collection terms.
Here is the breakdown of credit collections based on the given information:
Month 1:
- Credit sales: $100,000
- Expected collection: 50% collected in the current month = 50% x $100,000 = $50,000
Month 2:
- Credit sales: $120,000
- Expected collection:
- 50% collected in the current month = 50% x $120,000 = $60,000
- 30% collected in the next month = 30% x $120,000 = $36,000
- Total expected collection = $60,000 + $36,000 = $96,000
Month 3:
- Credit sales: $90,000
- Expected collection:
- 50% collected in the current month = 50% x $90,000 = $45,000
- 30% collected in the next month = 30% x $90,000 = $27,000
- Total expected collection = $45,000 + $27,000 = $72,000
Month 4:
- Credit sales: $70,000
- Expected collection:
- 50% collected in the current month = 50% x $70,000 = $35,000
- 30% collected in the next month = 30% x $70,000 = $21,000
- Remaining amount collected in the month after = $70,000 - ($35,000 + $21,000) = $14,000
Therefore, the expected cash collections in months 3 and 4 are $72,000 and $14,000, respectively.