Question

Operating Budgets Marker Products, Inc. sells all of its products on credit. The company expects to collect 65%of sales in the quarter of sale and 35% the quarter following the sale. Accounts receivable at the end of last year totaled $3,000,000, all of which will be collected in the first quarter of the coming year. Marker's sales budget shows the following projected sales revenues:

Quarter 1: $8,800,000
Quarter 2: $11,000,000
Quarter 3: $11,440,000
Quarter 4: $10,560,000
Required: Prepare a budget for cash collections from sales for each of the four quarters.

Answer 1

To calculate the cash collections budget for Marker Products, Inc., add 65% of the sales revenue of the current quarter to 35% of the sales revenue from the previous quarter, including the $3,000,000 to be collected from the previous year in the first quarter.

Step-by-step explanation:

The question involves preparing a cash collections budget for Marker Products, Inc. for each quarter. The company collects 65% of sales in the quarter of the sale and the remaining 35% in the following quarter. To project the cash collections for each quarter, we will calculate 65% of the current quarter's sales and add 35% of the previous quarter's sales, taking into account the $3,000,000 accounts receivable from last year that will be collected in the first quarter.

• Quarter 1: 100% of $3,000,000 (previous year receivables) + 65% of $8,800,000 = $8,720,000
• Quarter 2: 35% of $8,800,000 + 65% of $11,000,000 = $10,295,000
• Quarter 3: 35% of $11,000,000 + 65% of $11,440,000 = $10,972,000
• Quarter 4: 35% of $11,440,000 + 65% of $10,560,000 = $10,536,000