Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As the manager of Corby and Danes Ltd, you are concerned about the current collection policy from credit customers.The current policy is that all sales

As the manager of Corby and Danes Ltd, you are concerned about the current collection policy from credit customers.The current policy is that all sales are to be made on credit, with the expectation that 70% of all accounts receivable are collected in the month immediately following the sale:20% in the second month, 8% in the third month, and the balance written off as bad.

The actual sales for the four months January to April were as follows:

January $40 000; February $50 000; March $60 000; April $60000

The forecast sales for the next four months are:

May $70 000; June $80 000; July $80 000; August $80000

You need a report that will show how much cash you can expect to collect each month from accounts receivable for the period February to August.You also like to know what the cash flow patterns would be if either of the two policies below were to be adopted from now (ie from May) on.

Alternative policy:

80% of the accounts receivable to be collected in the month following the sale, 10% in the second month, 8% in the third month and the balance written off as bad.

Required:

1.Show what the existing report on cash collection from accounts receivable looks like.

2.Show how the additional reports revealing the cash flow situation under the proposed alternative policy would look.

3.After analysing the data which policy you would recommend to improve the collection process for the month of May, June and July

1.Current policy:

Collections from accounts receivable

Feb

Mar

Apr

May

June

July

Aug

$

$

$

$

$

$

$

From sales in:

Jan($40 000)

Feb. ($50 000)

Mar. ($60 000)

Apr. ($60 000)

May ($70 000)

June ($80 000)

July ($80 000)

2.Alternate policy:

Collections from accounts receivable

Feb

Mar

Apr

May

June

July

Aug

$

$

$

$

$

$

$

From sales in:

Jan ($40 000)

Feb. ($50 000)

Mar. ($60 000)

Apr. ($60 000)

May ($70 000)

June ($80 000)

July ($80 000)

3.Recommendation:

image text in transcribed As the manager of Corby and Danes Ltd, you are concerned about the current collection policy from credit customers. The current policy is that all sales are to be made on credit, with the expectation that 70% of all accounts receivable are collected in the month immediately following the sale: 20% in the second month, 8% in the third month, and the balance written off as bad. The actual sales for the four months January to April were as follows: January $40 000; February $50 000; March $60 000; April $60 000 The forecast sales for the next four months are: May $70 000; June $80 000; July $80 000; August $80 000 You need a report that will show how much cash you can expect to collect each month from accounts receivable for the period February to August. You also like to know what the cash flow patterns would be if either of the two policies below were to be adopted from now (ie from May) on. Alternative policy: 80% of the accounts receivable to be collected in the month following the sale, 10% in the second month, 8% in the third month and the balance written off as bad. Required: 1. Show what the existing report on cash collection from accounts receivable looks like. 2. Show how the additional reports revealing the cash flow situation under the proposed alternative policy would look. 3. After analysing the data which policy you would recommend to improve the collection process for the month of May, June and July 1. Current policy: Collections from accounts receivable Feb Mar Apr May June July Aug $ $ $ $ $ $ $ From sales in: Jan ($40 000) Feb. ($50 000) Mar. ($60 000) Apr. ($60 000) May ($70 000) June ($80 000) July ($80 000) 2. Alternate policy: Collections from accounts receivable From sales in: Jan ($40 000) Feb. ($50 000) Mar. ($60 000) Apr. ($60 000) May ($70 000) June ($80 000) July ($80 000) Feb Mar Apr May June July Aug $ $ $ $ $ $ $ 3. Recommendation

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cornerstones Of Cost Accounting

Authors: Don Hansen, Maryanne M. Mowen

1st Edition

053873678X, 978-0538736787

More Books

Students also viewed these Accounting questions

Question

question is attached in image

Answered: 1 week ago