Pioneer square carpet specialties has found that cash collections from customers tend to occur in the following pattern
Collected within cash discount period in month of sale 50%
Collected within cash discount period in first month after month of sale 10%
Collected after cash discount period in first month after month of sale 25
Collected after cash discount period in second month after month of sale 12
Never collected 3%
Total sales in any month (before cash discounts) 100%
Cash discount allowable as a percentage of invoice price 1%
Compute the total cash budgeted to be collected in March if sales are predicted as $300,000 for January, $400,000 for February, and $450,000 for March.
What we need to do here is to check how much of January's, February's and March's sales are collected in March. Let's do each month separately.
Collections of this month in March will happen in the 2nd month after sale (sale will be in January, cash will be collected in March). We know from the data that 12% of the sales of any month are collected (with no cash discount, since they are made "after cash discount period") in the 2nd month after sale. Therefore, since ...
In narrative form, the solution explains the calculations needed to arrive at March cash collections. There is a definitive answer after the calculations.