Question

ABC Company has sales forecasts of the following. February = $40,000, March = $65,000. All sales are on account and collected as follows: All sales are on account and are collected as follows: 20% in the current month, 50% in the month following, 25% in the second month following, and 5% uncollectible. If the total cash receipts for March equal $48,250. What is the sales forecast for January?

Answer 1

Step-by-step explanation:

To find the sales forecast for January, we can work backward from the given information about the total cash receipts for March.

Here's how to calculate it:

Start with the March sales forecast, which is $65,000.

Calculate the amount of March sales that were collected in March (20% of March sales), which is 0.20 * $65,000 = $13,000.

Calculate the amount of March sales that were collected in April (50% of March sales), which is 0.50 * $65,000 = $32,500.

Calculate the amount of March sales that were collected in May (25% of March sales), which is 0.25 * $65,000 = $16,250.

Now, add up the total cash receipts for March ($48,250), which include the collections from March, April, and May:

$13,000 (March) + $32,500 (April) + $16,250 (May) = $48,250

So, the total cash receipts for March equal $48,250 as given.

Now, let's find the sales forecast for January. Since January sales will be collected in January, we need to find the sales forecast for January that, when collected in January (20%), equals the total cash receipts for March ($13,000).

Let "X" be the sales forecast for January:

0.20 * X = $13,000

Now, solve for X:

X = $13,000 / 0.20

X = $65,000

So, the sales forecast for January is $65,000.