Question

For Ellie Corporation, all sales are on account, and the collection pattern is 40% in the month of sale, 40% in the month following the sale, and 20% in the second month following the sale. The budgeted sales data for Ellie Corporation are as follows:

January: $50,000
February: $60,000
March: $40,000
April: $30,000
What is the amount of cash that should be collected in March?

A. $40,000

B. $60,000

C. $55,000

D. $50,000

Answer 1

The amount of cash that should be collected in March for Ellie Corporation is $16,000.

Step-by-step explanation:

To calculate the amount of cash that should be collected in March, we need to apply the collection pattern to the budgeted sales data.

According to the collection pattern of 40% in the month of sale, 40% in the month following the sale, and 20% in the second month following the sale, here's how the collections would look like:

• January sales: $50,000, collected in January: $20,000
• February sales: $60,000, collected in February: $24,000
• March sales: $40,000, collected in March: $16,000
• April sales: $30,000, collected in March: $0 (not yet due)
  

So, the amount of cash that should be collected in March is $16,000.