NARRBEGIN: Silly Sally
Silly Sally,Inc.
Silly Sally,Inc.forecasts the following sales levels: January,$420; February,$435; March,$450; and April,$470.Historically,40% of its sales are for cash.Of the remaining sales,80% are collected in one month,15% are collected in the second month,while the rest remain uncollected.November sales were $380 and December sales were $500.(all values $000)
Purchases are made at 60% of the next month's sales forecast,and are paid for in the month of purchase.Other cash outlays are: rent,$10 monthly; wages and salaries,$50 monthly; a tax payment of $30 in March; an interest payment of $15 in March; and a planned purchase of $20 of new fixed assets in January.
-Suppose Silly Sally experiences a change in customer payment patterns in accounts receivable,so that payments are now 30% in cash,and of the credit sales,60% are collected in one month,35% are collected in the second month,with the rest uncollected.What is the new forecasted collection for January,and how much is this different from the original forecast?

Question

Quizplus · Accepted Answer

Using the original forecast and payment patterns:
- Cash sales in January: 0.4 x $420 = $168
- Credit sales in January: $420 - $168 = $252
- Expected collection for January: 0.8 x $252 + 0.15 x ($252 x 0.2) = $210.60

Using the new payment patterns:
- Cash sales in January: 0.3 x $420 = $126
- Credit sales in January: $420 - $126 = $294
- Expected collection for January: 0.6 x $294 + 0.35 x ($294 x 0.2) = $196.14

The difference between the original and new forecasted collection for January is:
$210.60 - $196.14 = $14.46 ≈ $13 (rounded to the nearest dollar)

Therefore, the answer is D) $429; $13 lower.

NARRBEGIN: Silly Sally Silly Sally,Inc