Question

QUESTION 1

1. Anglo Foods Inc., has the following forecasted sales for 2018:

   January	February	March	April	May	June	July
   $200,000	$350,000	$420,000	$350,000	$270,000	$200,000	$300,000

   Actual sales in November and December 2017 were $375,000 and 266,667, respectively. 60% of sales are on credit (i.e. 40% of sales will be received in cash in the same month). The firm collects 60% of these credit sales (i.e., 60%*60% = 36% of sales) during the first month after the sale and the remainder (i.e. 40% of credit sales and thus 40%*60% = 24% of sales) during the following second month.

   For example, for the January sales of $200,000, 40% (i.e. $80,000) will be received in cash in January, 36% (i.e. $72,000) will be received in cash in February, and the rest ($48,000) will be received in cash in March.

          Here are the information about the cash expenditures.

   1. Purchases constitute 60% of the next month’s sales. The company pays 50% during the first month after the purchase was made and the remainder in the next month.

   For example, January purchases will be 60% of February sales, i.e., $350,000*60%=$210,000. The company pays 50% of it ($105,000) in cash in February, and the rest in March.

   2. Wages, taxes and other expenses are expected to be 30% of forecasted sales.
   3. A major capital expenditure of $70,000 is expected in March.
   4. Interest payments are expected to be $30,000 every month.

   The company needs a minimum cash balance of $25,000. The beginning cash balance is $30,000.

   Using the Bithlo Barbecues’ simple cash budget example from Chapter 4, prepare their cash budget for January to June 2018.

   Answer Q (1-5) based on the cash budget you have prepared.

   1. How much is the company’s cash collection in March from the March sales of $420,000?

   a		$168,000
   b		$126,000
   c		$342,000
   d		$400,000

Answer 1

The cash collection of March sales will be as follows :

	Amount
cash sales	420000*40%= 168000
credit sales
April	420000*36%= 151200
May	420000*24%= 100800
Total	420000

company’s cash collection in March from the March sales of $420,000 = $ 168000

correct option is "a"- 168000