Cash and Credit Sales to Customers Hill Country Sports sells equipment for river

Question

Cash and Credit Sales to Customers

Hill Country Sports sells equipment for river rafting and other water sports. Sales to customers are paid 20 percent in cash and 80 percent on credit. The credit sales are collected 10 percent in the month of sales, 60 percent in the month following the sale, and 30 percent two months after the sale. The sales for May through September, 2017, are as follows:

May       $10,000

June       $25,000

July       $30,000

August    $20,000

September       $5,000

What amount of cash is collected from customers during each of the peak months of sales in June, July and August?

Cash and Credit Purchases of Merchandise

Hill Country Sports has variable costs of 80 per cent per unit of the above sales. They intend to have 20 percent of the next month’s sales in inventory at the end of each month. If Hill Country Sports pays cash for 40 percent of its merchandise purchases in the month of purchase, and 60 percent on credit are paid in the following month, how much cash is paid for merchandise purchases during each of the months of June, July and August?

Explanation / Answer

Collections in June = (25000*20%)+(25000*80%*10%)+(10000*80%*60%) = $10800

Collections in July = (30000*20%)+ (30000*80%*10%) + (10000*80%*30%)+(25000*80%*60%) =$22800

Collections in August = (20000*20%)+(20000*80%*10%) + (25000*80%*30%)+(30000*80%*60%) =$26000

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