Joy Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 25 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 30 percent in the month after the sale, and the remaining 20 percent two months after the sale. Gross sales for the quarter are projected as follows: January $20,000 February $10,000 March $40,000 Joy's expected cash collections for March would be:

$30,250

Explanation:

The computation of expected cash collections for March is shown below:-

Particulars            January           February           March

Gross sales           $20,000         $10,000           $40,000

Cash sales (25%)   $5,000          $2,500             $10,000

Credit sales           $15,000          $7,500             $30,000

To reach credit sales we simply deduct the cash sales from gross sales.

Particulars                                March

Collections from:  

March cash sales                   $10,000

Credit sales for:

January                                    $3,000 ($15,000 × 20%)

February                                  $2,250 ($7,500 × 30%)

March                                       $15,000  ($30,000 x 50%)

Total collections                      $30,250

To reach total collection we simply added the march cash sales and Credit sales of Jan, Feb and March.