Big Air Board Company, a global manufacturer and distributor of both surfboards and snowboards, is in a very seasonal business. Although surfboard sales are only mildly seasonal, the snowboard sales are driven by peak demand in the first and fourth calendar quarters of each year. The following table gives the firm’s monthly sales for the immediate past quarter (October through December 2012) and its forecast monthly sales for the coming year (calendar-year 2013).
Month Sales
($ in millions)
Historic
October 2012 ........... $3.7
November 2012 .......... 3.9
December 2012 .......... 4.3
Forecast
January 2013 ........... 3.8
February 2013 ............ 2.6
March 2013 ........... 2.2
April 2013 ............ 1.6
May 2013 ............. 1.8
June 2013 ............. 1.9
July 2013 ............. 2.0
August 2013 ........... 2.2
September 2013 ......... 2.4
October 2013 .......... 4.1
November 2013 ......... 4.6
December 2013 ......... 5.1
The firm extends 2/10 net 30, EOM credit terms to all customers. It collects 98% of its receivables; the other 2% is typically written off as bad debts. Big Air Board’s historic collection pattern, which is expected to continue through 2013, is 5% collected in the month of the sale, 65% collected in the first month following the sale, and 28% collected in the second month following the sale. Using the data given, calculate the payment pattern of Big Air Board’s accounts receivable. Comment on the firm’s monthly collections during calendar year 2013.