Question

1. Average collection period is 2 months. Cash sales and average receivables are Rs. 5. 00,000 and
Rs. 6, 50,000 respectively. What will be the amount of total sales?
(a) Rs. 22,00,000
(b) Rs. 44,00,000
(c) Rs. 39,00,000
(d) Rs. 6, 50,000​

Answer 1

Given:- Average collection period is 2 months. Cash sales and average receivables are Rs. 5. 00,000 and  Rs. 6, 50,000 respectively.

To find:- What will be the amount of total sales?

Solution:-

Average collection period = 2 months

Average receivables =  Rs. 6, 50,000

Cash Sales= Rs. 5, 00,000

Average collection period=$\frac{Average receivables}{\frac{Net Credits sales}{12} }$

∴  Net credits sales= (Average receivables * 12 ) /(Average collection period)          

    Net credits sales=(6, 50,000 * 12 ) /(2)

                                 = Rs. 39,00,000

 The amount of total sales= Cash Sales + Net credits sales

                                             =5, 00,000 + 39,00,000

                                             = Rs.44,00,000

Hence, the amount of total sales will be Rs.44,00,000.

∴The option (b) is correct.(Ans)

Answer 2

Answer:

Total sales is equal to  44,00,000 Rs.

Explanation:

Solution:

• Average collection period = Avg. receivables / net credit sales ÷ 12
• Average collection peiod = 6,50,000 / net credit sales ÷ 12
• Average collection peiod = 2
• Or net credit sales = 6,50,000 x 12 / 2 = 39,00,000

Total sale is the sum of cash and credit.

Total sales = cash + credit  

Total sales = 5,00,000 + 39,00,000

Total sales = 44,00,000

Thus total sales is equal to 44,00,000 Rs.