The Model Company is to begin operations in April. It has budgeted April sales of $70,000, May sales of $74,000, June sales of $80,000, July sales of $82,000, and August sales of $78,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible. The Model Company is considering charging 1 1/2% on any balance that is not collected in the month following the month of sale. This charge would also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, and 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. Under this stricter credit policy, what is the amount of cash to be collected in July

Explanation:

Computation of cash collection for July=  $ 75,352

Revised Sales budgets as a result of change in policy

                                                                                    Cash            Credit                                                                                        

Sales-April $ 70,000 *(100 % -7% ) = $ 65,100         $  9,765     $ 55,335

Sales -May $ 74,000 *(100 % -7 %) = $ 68,820:       $ 10.323     $ 58,497

Sales -Jun  $ 80,000 *(100 % -7 %)  = $ 74,400       $ 11,160       $ 63,240

Sales -Jul   $ 82,000 *(100 % -7 %)  = $ 76,260        $ 11,439      $ 64,821

Collections for the month of July

From July cash sales                                                                      $ 11,439

From April sales : 3 % of credit sales of April                               $  1,755

From May sales : 16 % of credit sales of May                               $ 10,118

From June sales : 80% of credit sales of June                             $ 51,857

Additional 1.5 % on amount collected in the second month

after sales  ( $ 1,755 + $ 10,118) * 1.5 %   ( $ 26 + $ 157)               $     193

Total collections for July                                                                $ 75,352

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