Wichita Industries' sales are 10% for cash and 90% on credit.Credit sales are collected as follows: 30% in the month of sale,50% in the next month,and 20% in the second following month.Wichita Industries' had $12,000 from November sales and $42,000 from December sales.Assume that total sales for January and February are budgeted to be $50,000 and $100,000,respectively.What are the expected cash receipts for February from current and past sales?

Question

Quizplus · Accepted Answer

First, we need to calculate the expected collections from November and December sales: 
November sales: 
- 10% for cash = $1,200 
- 30% collected in November = $3,600 
- 50% collected in December = $6,000 
- 20% collected in January = $2,400 
Total collections from November sales = $13,200

December sales: 
- 10% for cash = $4,200 
- 30% collected in December = $12,600 
- 50% collected in January = $21,000 
- 20% collected in February = $8,400 
Total collections from December sales = $46,200

Now, we need to calculate the expected collections from January and February sales: 
January sales: 
- 10% for cash = $5,000 
- 30% collected in January = $15,000 
- 50% collected in February = $25,000 
- 20% collected in March = $10,000 
Total collections from January sales = $55,000

February sales: 
- 10% for cash = $10,000 
- 30% collected in February = $30,000 
- 50% collected in March = $50,000 
- 20% collected in April = $20,000 
Total collections from February sales = $110,000

Therefore, the expected cash receipts for February from current and past sales are: 
- Collections from past sales (November and December) = $13,200 + $46,200 = $59,400 
- Collections from current sales (January and February) = $55,000 + $110,000 = $165,000 
- Total expected cash receipts for February = $59,400 + $165,000 = $224,400 
- Subtracting the collections from January ($55,000) leaves us with $169,400 
- Therefore, the expected cash receipts for February from current and past sales is $71,500 (Option B).

Wichita Industries' Sales Are 10% for Cash and 90% on Credit.Credit