Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 to be as follows: Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2010 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1st,2010.Assume that the interest rate on short-term borrowing is 1% per month.What is Fielding's projected total receipts (collections)for April?

Question

Fielding Wilderness Outfitters had projected its sales for the first six months of 2010 to be as follows:  Cost of goods sold is 60% of sales.Purchases are made and paid for two months prior to the sale.40% of sales are collected in the month of the sale,40% are collected in the month following the sale,and the remaining 20% in the second month following the sale.Total other cash expenses are $40,000/month.The company's cash balance as of March 1st,2010 is projected to be $40,000,and the company wants to maintain a minimum cash balance of $15,000.Excess cash will be used to retire short-term borrowing (if any exists).Fielding has no short-term borrowing as of March 1st,2010.Assume that the interest rate on short-term borrowing is 1% per month.What is Fielding's projected total receipts (collections)for April?

Quizplus · Accepted Answer

First, we need to find the projected sales for April: 
Projected sales for April = Sales for June + Sales for July + Sales for August + Purchases made in March and April 
= $290,000 + $400,000 + $450,000 + $285,000 
= $1,425,000

Next, we need to find the total collections for April: 
40% of sales from June = 0.4($290,000) = $116,000 (collected in April) 
40% of sales from July = 0.4($400,000) = $160,000 (collected in May) 
20% of sales from August = 0.2($450,000) = $90,000 (collected in June)

Total collections for April = $116,000 
Therefore, the projected total receipts (collections) for April is $124,000 ($116,000 + $8,000 in cash balance from March).

Fielding Wilderness Outfitters Had Projected Its Sales for the First