Firefly Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 20 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 35 percent in the month after the sale, and the remaining 15 percent two months after the sale. Sales for the quarter are projected as follows: January, $60,000; February, $30,000; and March, $90,000.
Accounts receivable on December 31 were $45,000.
The expected cash collections of Firefly Manufacturing Company for March are
A)$90,000.
B)$69,600.
C)$64,500.
D)$114,600.

Question

Quizplus · Accepted Answer

To calculate the expected cash collections for March, we need to calculate the sales on account for each month and the expected collection of those sales.

For January:
Total sales = $60,000
Cash sales = 20% of $60,000 = $12,000
Sales on account = $60,000 - $12,000 = $48,000
Expected collection in January = 50% of $48,000 = $24,000

For February:
Total sales = $30,000
Cash sales = 20% of $30,000 = $6,000
Sales on account = $30,000 - $6,000 = $24,000
Expected collection in February = 35% of $24,000 = $8,400

For March:
Total sales = $90,000
Cash sales = 20% of $90,000 = $18,000
Sales on account = $90,000 - $18,000 = $72,000
Expected collection in March = 15% of $48,000 + 35% of $24,000 + 50% of $72,000 = $6,840 + $8,400 + $36,000 = $51,240

Therefore, the expected cash collections for March are $51,240, which is answer choice B.

Firefly Manufacturing Company Needs to Know Its Anticipated Cash Inflows