A Company Is Formulating Its Plans for the Coming Year

question 46

Multiple Choice

A company is formulating its plans for the coming year, including the preparation of its cash budget. Historically, the company's sales are 30% cash. The remaining sales are on credit with the following collection pattern:
$$\begin{array} { l c } \text { Collections on Account } & \text { Percent } \\& \text { age } \\\text { In the month of sale } & 40 \% \\ \text { In the month following the sale } &58 \% \\\text { Uncollectible } &2\%\end{array}$$
Sales for the first 5 months of the coming year are forecast as follows:
$$\begin{array} { l r } \text { January } & \$ 3,500,000 \\\text { February } & 3,800,000 \\\text { March } & 3,600,000 \\\text { April } & 4,000,000 \\\text { May } & 4,200,000\end{array}$$
For the month of April, the total cash receipts from sales and collections on accounts would be: (CIA adapted)

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Definitions:

Inverse Demand Function

A mathematical function that expresses the price of a good or service as a function of the quantity demanded, illustrating how price varies with changes in demand.

Landing Rights

The permission given by a country to a foreign airline to land in its territory.

Seating Capacity

The maximum number of individuals that can be accommodated in a venue with available seats.

Monopoly Profits

Excess profits earned by a monopoly as a result of having exclusive control over a market and the ability to set higher prices.