Question

the following information pertains to Hepburn Company:

Month	Sales	Purchases
January	$70,000	$38,000
February	$85,000	$41,000
March	$101,000	$61,000

Cash is collected from customers in the following manner:

Month of sale 35%

Month following the sale 65%

50% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Labor costs are 25% of sales. Other operating costs are $38,000 per month (including $9,000 of depreciation). Both of these are paid in the month incurred,

The cash balance on March 1 is $10,000. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.

How much cash will be collected from customers in March?

Answer 1

Cash is collected from customers in the following manner:

Month of sale 35%

Month following the sale 65%

Hence, in the month of March, 35% of March sales and 65% of February sales will be received.

Schedule of cash collection from customers

65% of sales for the month of February (85,000 x 65%)	$55,250
35% of sales for the month of March (101,000 x 35%)	$35,350
Total cash collection	$90,600

Cash to be collected from customers in March = $90,600