This is the amount of sales for the month, not the receivables balance at the end of the month. See the correct answer for a complete explanation.
If Jackson Distributors sells 150 units at $300 each day, they will have daily sales of $45,000. In a 30 day period, this is $1,350,000. In order to answer this question, what we can do is look at one typical month and see what the receivables will be at the end of the month. In the first 20 days of the month there were sales of $900,000 and of this amount only 60% has been paid by the end of the month. Therefore, there is still 40%, or $360,000 remaining as a receivable. Of the sales made after the 20th of the month ($450,000), none has yet been collected. So, the receivables balance at the end of the 30 days is $810,000 ($360,000 + $450,000). This can also be solved by calculating the number of days of sales the company has in receivables at any one time and multiplying that number of days by the company's daily sales of $45,000. Calculate the weighted average of the number of days that customers take to pay: (.60 × 10) + (.40 × 30) = 18 days 18 days × $45,000 = $810,000
This answer results from calculating a weighted average of the number of days that customers take to pay, then multiplying the calculated weighted average by the daily sales volume of $45,000 (150 units at a price of $300 each). The only error in this calculation is that the percentages of the total payments represented in each of the two collection periods is reversed in the weighted average collection period calculation.
This answer results from using the average of the 10-day collection period and the 30 day collection period — 20 days — and multiplying that average by the daily sales volume of $45,000 (150 units at a price of $300 each). The average of the two collection periods should be a weighted average, weighted according to each one's percentage of the total payments, not a simple average.
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