The controller of Harrington Company estimates sales and production for the firs

Question

The controller of Harrington Company estimates sales and production for the first four months of 2016 as follows:

Sales are 40% cash and 60% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 40% of credit sales are collected. It takes 4 kg of direct material to produce a finished unit, and direct materials cost $5 per kg. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 60% the following month. Ending direct materials inventory for each month is 40% of the next month’s production needs.

January’s beginning materials inventory is 1,744 kg. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.

Answer the following questions: What is the accounts receivable balance at the end of March?

January February March April Sales $33,600 $44,100 $51,100 $24,600 Production in units 1,090 1,650 2,130 2,650

Explanation / Answer

To find out the accounts receivable balance at the end of March, the relevant data in the question is only the Sales figure. Rest all other data given in the question is unnecessary or irrelevant for calculating accounts receivable at the end of March.

Now, the given data:

Manner of Collection of the Accounts Receivables:

1.40% will be received in cash in the month of Sale.

2.60% of the Credit sales will be collected in the month of Sale itself.

(Say 60% of Jan month credit sale will be collected in the month of Jan itself)

3.Remaining 40% of the Credit Sale will be collected in the following month

(Say 40% of the Jan month Credit Sale will be collected in the month of Feb)

20,160 - 12,096

=  8,064

Calculation of Trade Receivables at the end of March

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