Sweetney Enterprises distributes a single product which sells for $18 per unit.

Question

Sweetney Enterprises distributes a single product which sells for $18 per unit. Sweetney pays $12 per unit to buy the product. Additionally, Sweetney has $15,000 per month in fixed costs. It is Sweetney's policy to maintain an inventory at the end of each month equal to 40% of the next month's projected cost of sales. Purchases are paid in the month after purchase.

Sweetney makes all sales on credit and collects them 30% in the month of sale and 70% in the month after sale. Budgeted monthly sales in units for the first five months of 2008 are as follows:
January 12,000 units
February 14,000 units
March 17,000 units
April 20,000 units
May 16,000 units


Reference: Ref 10-6


What will cash collections be in April?
Answer
$360,000
$322,200
$214,800
$17,900

Explanation / Answer

Cash collections in April: 30% of April sales = 0.30*20,000*18 = 108,000 70% of March sales = 0.70*17,000*18 = 214,200 Total = 108,000 + 214,200 = 322,200 Answer: $322,200

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