Cash collection case

CURRENT SITUATION:

Gulf company is budgeting for the third quarter for year 2020. The company collection of credit sales is as follows: 50% in the same month, 25% in the next month following the sale and 15% in two months following sale. 10% is uncollectable. The sales budget for the next quarter is as follows:

The manager of the company was concerned that 10% of the companys sales is uncollectable, which affects the cash available and results in shortages in cash. The company is consistently borrowing to cover any deficits in the cash budget.

Gulf company manager was suggesting to implement one of these TWO proposals:

Proposal 1: The manager was suggesting (from July sales onwards) speeding up the collection from customers to be 60% in the month of sale, 35% in the next month following the sale and 5% uncollectable. The proposed situation will make some customers unhappy and will result in a 5% decline in sales.

Proposal 2: The manager was proposing (from July sales onwards) to reduce the price to $9.3/ unit and speed up the collection to be 70% in the month of sale and 30% in the following month.

The manager has approached you to help take a decision. The manager wants to know whether one of the proposed situations will be better for the company and if so WHAT WILL BE THE INCREASE IN CASH COLLECTION IN JULY, AUGUST, SEPTEMBER AND FOR THE TOTAL QUARTER?

The sales budget for the next quarter is as follows: August 30,000 September 40,000 Total 90,000 July Budgeted sales in 20,000 units Selling price 10 Total budgeted sales 200,000 ($) | 10 10 400,000 10 900,000 300,000 Note that: May and June ACTUAL sales are as follows: Units sold (actual) Selling price Total sales $ (actual) 20,000 10 200,000 25,000 | 10 250,000