Avery Manufacturing has the following sales budgets for the fourth quarter. The accounting manager has analyzed cash collections and determined that credit sales are collected 70% in the month of sale, 20% in the month following the sale, and 10% in the second month following sale.How much cash is Avery expected to collect in December?
A)$1,154,790
B)$1,178,080
C)$898,990
D)$1,205,600

Question

Avery Manufacturing has the following sales budgets for the fourth quarter.  The accounting manager has analyzed cash collections and determined that credit sales are collected 70% in the month of sale, 20% in the month following the sale, and 10% in the second month following sale.How much cash is Avery expected to collect in December?
A)$1,154,790 
B)$1,178,080 
C)$898,990 
D)$1,205,600

Quizplus · Accepted Answer

To calculate the cash collections for December, we need to first calculate the credit sales for October, November, and December using the given sales budget:
October: $800,000 x 30% = $240,000 credit sales
November: $700,000 x 50% = $350,000 credit sales
December: $900,000 x 20% = $180,000 credit sales

Next, we need to calculate the cash collections for each of these credit sales:
October: $240,000 x 70% = $168,000 collected in October
$240,000 x 20% = $48,000 collected in November
$240,000 x 10% = $24,000 collected in December

November: $350,000 x 70% = $245,000 collected in November
$350,000 x 20% = $70,000 collected in December
$350,000 x 10% = $35,000 collected in January

December: $180,000 x 70% = $126,000 collected in December
$180,000 x 20% = $36,000 collected in January
$180,000 x 10% = $18,000 collected in February

Adding up these collections for December:
$24,000 (from October credit sales) + $70,000 (from November credit sales) + $126,000 (from December credit sales) = $220,000
However, we also need to add the cash sales for December which are given as $900,000 x 20% = $180,000
So the total cash collections for December are:
$220,000 + $180,000 = $400,000
Therefore, the best choice is B.

Avery Manufacturing Has the Following Sales Budgets for the Fourth