A company has forecast sales in the first three months of the year as follows (figures in millions): January, $60; February, $80; March, $100. 60 percent of sales are usually paid for in the month that they take place and 40 percent in the following month. Receivables at the end of December were $24 million. What are the forecasted collections on accounts receivable in March?

Question

Quizplus · Accepted Answer

First, we need to calculate the sales that will generate receivables in January, February, and March:

January sales = $60 million x 0.6 = $36 million
February sales = $80 million x 0.6 + $60 million x 0.4 = $72 million
March sales = $100 million x 0.6 + $80 million x 0.4 = $88 million

Then, we need to calculate the total accounts receivable at the end of March:

Total accounts receivable = receivables from January + receivables from February + receivables from March

Receivables from January = $36 million (collected in February)
Receivables from February = $72 million (collected in March)
Receivables from March = $88 million (collected in April)

Total accounts receivable = $36 million + $72 million + $88 million = $196 million

Finally, we need to subtract the accounts receivable balance at the end of December:

Forecasted collections on accounts receivable in March = Total accounts receivable at the end of March – accounts receivable balance at the end of December = $196 million – $24 million = $172 million

Therefore, the best choice is B, $92 million.

A Company Has Forecast Sales in the First Three Months