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Homework answers / question archive / Grace Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month
Grace Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 25 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 30 percent in the month after the sale, and the remaining 20 percent two months after the sale. Gross sales for the quarter are projected as follows: January, $20,000; February, $10,000; and March, $40,000.
Accounts receivable on December 31 were $30,000. Grace's expected cash collections for March would be:
A) $37,000
B) $32,000
C) $47,200
D) $30,250
E) None of the Above
| Computation of Total Cash Collections for March: | |||
| January | February | March | |
| Gross sales | 20000 | 10000 | 40000 |
| Cash sales (25%) | 5000 | 2500 | 10000 |
| Credit sales | 15000 | 7500 | 30000 |
| March | |||
| Collections from: | |||
| March cash sales | 10000 | ||
| Credit sales for - | |||
| January (15000 * 20%) | 3000 | ||
| February (7500 * 30%) | 2250 | ||
| March (30000 * 50%) | 15000 | ||
| Total Cash Collections | 30250 | ||
So, the correct option is D "$30,250".
