DuraBlend First Aid started operations on January 1, 2017.On that date, the only assets were cash of $13,000, and inventory of $600 consisting of direct materials.The company sells first aid kits for $18 each.Additional information concerning the company's operations follows:
-Variable costs of production are $5 for each kit consisting of direct materials of $2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
-Other expenses include $1 per first aid kit in variable selling expenses, $22,000 per month in fixed production costs, and $14,000 per month in fixed selling and administration costs.
-Sales are collected 40% in the month of sales and 60% in the month after the sale.
-All expenses are paid in the month they are incurred except materials that are paid in the month following purchase.
-The company plans its ending inventory of first aid kits to be 20% of the units to be sold during the next month.Direct material inventory is budgeted to be equal to 10% of the next month's production requirements.
-Sales in units are forecasted as follows: $$\begin{array} { l l }
\text { January } & 6,000 \
\text { February } & 8,000 \
\text { March } & 7,000 \
\text { April } & 9,000
\end{array}$$
How much will be reported for Accounts Receivable on the company's balance sheet at the end of February?

Question

DuraBlend First Aid started operations on January 1, 2017.On that date, the only assets were cash of $13,000, and inventory of $600 consisting of direct materials.The company sells first aid kits for $18 each.Additional information concerning the company's operations follows:
-Variable costs of production are $5 for each kit consisting of direct materials of $2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
-Other expenses include $1 per first aid kit in variable selling expenses, $22,000 per month in fixed production costs, and $14,000 per month in fixed selling and administration costs.
-Sales are collected 40% in the month of sales and 60% in the month after the sale.
-All expenses are paid in the month they are incurred except materials that are paid in the month following purchase.
-The company plans its ending inventory of first aid kits to be 20% of the units to be sold during the next month.Direct material inventory is budgeted to be equal to 10% of the next month's production requirements.
-Sales in units are forecasted as follows: $$\begin{array} { l l } 
\text { January } & 6,000 \
\text { February } & 8,000 \
\text { March } & 7,000 \
\text { April } & 9,000
\end{array}$$
How much will be reported for Accounts Receivable on the company's balance sheet at the end of February?

Quizplus · Accepted Answer

To calculate the Accounts Receivable at the end of February, we consider the sales made in February and January that have not yet been collected. Sales in February are 8,000 units at $18 each, totaling $144,000. 40% of February sales are collected in February, so 60% ($144,000 * 60% = $86,400) remains uncollected at the end of February. January sales are fully collected by the end of February (40% in January and 60% in February), so only the uncollected portion of February sales contributes to the Accounts Receivable at the end of February, which is $86,400.