Question
The accounting records of Backspace, Inc., revealed an accounts receivable balance of RM195,000 on January 1, 2020. Forty percent of the company's sales are for
The accounting records of Backspace, Inc., revealed an accounts receivable balance of RM195,000 on January 1, 2020. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to RM500,000 and RM530,000, respectively.
Assume that in the latter half of 2015, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows:
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