Problem:
Miriam Irby is president of MI Corp. Irby has decided to take a month's vacation with her family to South Africa, Zimbabwe, and Angola. Irby has researched the trip and determined that the total cost of the trip for her family will be approximately $50,000-she wants to go first-class on everything! Her travel agent says that a 10 percent discount can be obtained if Irby can write a check for the cost of the trip by the end of November. Irby says she sees no problem in doing that given that the company's expected billings for October, November, and December, respectively, are $100,000, $65,000, and $15,000 (when Irby will be on vacation).
As of October 31, 2010, MI Corp.'s accountant has estimated cash collections from billings to be 15 percent in the month of sale, 55 percent in the month following sale, and 30 percent in the second month following sale. The September 30, 2010, Accounts Receivable balance is $11,000; that amount is expected to be collected in October. Average monthly business costs are $22,500.
a. What are MI Corp.'s expected cash collections for October, November, and December?
b. Can Irby pay for her trip in November and obtain the 10 percent discount? Explain.
c. What would you suggest that Irby do?