Eastern Corporation collects 10% in the second month following sale, 55% in the month following sale and 35% of a month's sales in the month of sale. Budgeted sales for the upcoming four months are: The amount of cash that will be collected in July is budgeted to be

Question

Eastern Corporation collects 10% in the second month following sale, 55% in the month following sale and 35% of a month's sales in the month of sale. Budgeted sales for the upcoming four months are:  The amount of cash that will be collected in July is budgeted to be

Quizplus · Accepted Answer

To calculate the cash collected in July, we need to calculate the sales that will be collected in July (35% of July sales), the sales that will be collected in August (55% of June sales), and the sales that will be collected in September (10% of July sales).

July sales = $500,000 x 0.35 = $175,000
June sales = $600,000 
August sales = $600,000 x 0.55 = $330,000
September sales = $175,000 x 0.10 = $17,500

Total cash collected in July = July sales + August sales + September sales 
= $175,000 + $330,000 + $17,500 
= $522,500

However, we need to deduct the amount of sales that will be collected in October (which is 10% of August sales) because these sales are not part of the cash collected in July.

October sales = $330,000 x 0.10 = $33,000

Cash collected in July = Total cash collected - October sales 
= $522,500 - $33,000 
= $489,500

Therefore, the answer is B) $204,500.

Eastern Corporation Collects 10% in the Second Month Following Sale