credit control practice assessment, task 2 g- help

kthopkins

i'm really stuck on how you work out the answer to task 2 (g) .

Current turnover is £600,000 pm and currently customers pay 60 days after the month end. the company is introducing a 2% discount for month 3 if customer pay within the current month. it is expected that 80% of the current customers will take advantage of the discount.the sales revenue per month is shown below.

month1 600,000
month2 600,000
month3 600,000

cash receipts in month 3 will be ..... (and =1,070,400)

i can not get this answer and its driving me crazy.

help please

ariadne

I'm very tired (trying to understand absorption) and only level three but this is similar to cash management which I have just finished so I think this is right, if you meant £1,070,400 is the correct answer.

The receipts in month 3 will be the £600k from month 1 plus 80% of the month 3 turnover, minus the 2% discount.

Month 3
£600,000/100 x 80 = £480,000 (80% of sales)

£480,000/100 x 2 = £9600 (2% discount)

£480,000 - £9600 = £470,400 (receipts in month 3 from sales made in month 3)

Plus month 1 sales using the old 60 day payment schedule

£470,000 + £600,000 = £1,070,400.

ariadne

.

kthopkins

Thank you so much, that really helped.