Question

Budgeted sales in Allen Company over the next four months are given below: September October November December$100,000 $160,000 $180,000 $120,000 Thirty percent of the company’s sales are for cash and 70% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month’s credit sales are collected in the month of sale, 30% are collected in the month following sale, and 20% are collected in the second month following sale. Given these data, cash collections for December should be:A. $138,000B. $133,500C. $120,000D. $103,500

Answer 1

$138,200

Step-by-step explanation:

Given that thirty percent of the company’s sales are for cash and 70% are on account and 50% of a month’s credit sales are collected in the month of sale, 30% are collected in the month following sale, and 20% are collected in the second month following sale.

It means that cash collection in December will include;

• 30% sales in December
• 35% of sales in December
• 21% of sales in November and
• 14% of sales in October

= 30% * 120,000 + 35% * 120,000 + 21% * 180,000 + 14% * 160,000

= 36,000 + 42,000 + 37,800 + 22,400

= $138,200