Reference no: EM131625084

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