Estimate cash collections for march

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Reference no: EM13511723

The treasurer of John Loyde Company plans for the company to have a cash balance of $91,000 on March 1. Sales during March are estimated at $900,000. February sales amounted to $600,000, and January sales amounted to $500,000. Cash payments for March have been budgeted at $580,000. Cash collections have been estimated as follows:

-Sixty percent of the sales for the month to be collected during the month.

-Thirty percent of the sales for the preceding month to be collected during the month.

-Eight percent of the sales for the second preceding month to be collected during the month.

The treasurer plans to accelerate collections by allowing a 2 percent discount for prompt payment. With the discount policy, she expects to collect 70 percent of the current sales and will permit the discount reduction on these collections. Sales of the preceding month will be collected to the extent of 15 percent with no discount allowed, and 10 percent of the sales of the second preceding month will be collected with no discount allowed. This pattern of collection can be expected in subsequent months. During the transitional month of March, collections may run somewhat higher. However, the treasurer prefers to estimate collections on the basis of the new pattern so that the estimates will be somewhat conservative.

1. Estimate cash collections for March and the cash balance at March 31 under the present policy and under the discount policy.

2. Is the discount policy desirable?


Under the present policy

Under the discount policy

Balance, March 1

$ 91,000

$ 91,000


From March sales

540,000 ($900,000 X 60%:


From Feb. sales

180,000 ($600,000 X 30%;

90,000 ($600,000 X 15%)

From Jan. sales

40,000 ($500,000X 8%)

50,000 ($500,000 X 10%)

Total cash available

$85 1,000


Less: Disbursements



Balance, March 31



*$900,000 X 70% X 98% $617,400

2.No, cause under the discount policy, the March 31 cash balance will be smaller.

The following information pertains to merchandise purchased by Westwood Plumbing Company for July, August, September, and October. During the month, 60 percent of the merchandise to be sold during the following month is purchased. The balance of the merchandise is purchased during the month. Gross margin averages 20 percent of sales.


For the following

For the current month


$ 87,000

$ 92,000










Estimate the sales revenue for August, September, and October.

Reference no: EM13511723

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