A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $60; February, $80; March, $100. 60% of sales are usually paid for in the month that they take place and 40% 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

To calculate the forecasted collections on accounts receivable in March, we need to calculate the total amount of sales made in January, February, and March and then apply the 60-40 rule to each month's sales to determine how much of each month's sales will be collected in each month.

Sales in January = $60 million
Sales in February = $80 million
Sales in March = $100 million

For January sales, 60% or $36 million will be collected in January and 40% or $24 million in February. For February sales, 60% or $48 million will be collected in February and 40% or $32 million in March. And for March sales, 60% or $60 million will be collected in March and 40% or $40 million in April.

Now, we need to add up the amounts collected in March from January, February, and March sales:

Amount collected from January sales = 40% of $60 million = $24 million
Amount collected from February sales = 40% of $80 million = $32 million
Amount collected from March sales = 60% of $100 million = $60 million

Total amount collected in March = $24 million + $32 million + $60 million = $116 million

However, we need to subtract the amount of accounts receivable at the end of December ($24 million) to get the net amount collected in March:

Net amount collected in March = $116 million - $24 million = $92 million

Therefore, the answer is B) $92 million.

A Company Has Forecast Sales in the First 3 Months