Diamond Company has the following sales budget for the last six months of 2010: Historically,the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
8% of sales collected in second month following sale
2% of sales uncollectible
What is the expected cash collection of sales in October?
A)$58,500
B)$86,000
C)$92,400
D)$99,500

Question

Diamond Company has the following sales budget for the last six months of 2010:  Historically,the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
8% of sales collected in second month following sale
2% of sales uncollectible
What is the expected cash collection of sales in October?
A)$58,500 
B)$86,000 
C)$92,400 
D)$99,500

Quizplus · Accepted Answer

To calculate the expected cash collection of sales in October, we need to look at the sales budget for July, August, and September, which would be the sales that generate cash inflows in October.

July Sales: 70,000 x 65% = $45,500 
August Sales: 80,000 x 65% = $52,000 
September Sales: 90,000 x 65% = $58,500

Total expected cash collection from these sales in October: $45,500 + $52,000 + $58,500 = $156,000

However, we also need to consider the uncollectible sales and the sales that will generate cash inflows in November and December:

Total uncollectible sales: $240,000 x 2% = $4,800 
Sales collected in November: $156,000 x 25% = $39,000 
Sales collected in December: $156,000 x 8% = $12,480

Expected cash collection in October: $156,000 - $4,800 - $39,000 - $12,480 = $99,720

Therefore, the best choice is C.

Diamond Company Has the Following Sales Budget for the Last