Brown Company has developed the following sales projections for the calendar year: Normal cash collection experience has been that 50% of sales is collected during the month of sale and 45% in the month following sale.The remaining 5% of sales are never collected).Brown's budgeted cash collections for the third calendar quarter are (CMA adapted)

Question

Quizplus · Accepted Answer

To determine the budgeted cash collections for the third calendar quarter, we need to first calculate the total sales for the second calendar quarter.

Sales for second quarter = Sales for the year - Sales for first quarter - Sales for third quarter - Sales for fourth quarter

Sales for the year = $2,000,000
Sales for first quarter = ($2,000,000 / 4) = $500,000
Sales for third quarter = ($2,000,000 / 4) = $500,000
Sales for fourth quarter = ($2,000,000 / 4) = $500,000

Sales for second quarter = $500,000

We can then calculate the budgeted cash collections for the second quarter using the given information on cash collection experience:

Cash collections from sales in month of sale = 50% of sales for the quarter = ($500,000 * 0.50) = $250,000
Cash collections from sales in month following sale = 45% of sales for the quarter = ($500,000 * 0.45) = $225,000
Uncollectible sales = 5% of sales for the quarter = ($500,000 * 0.05) = $25,000

Total cash collections for the quarter = $250,000 + $225,000 = $475,000
Budgeted cash collections for the third quarter = Cash collections from sales in month of sale for third quarter + Cash collections from sales in month following sale for second quarter = ($500,000 * 0.50) + ($225,000) = $425,000

Therefore, the best choice is C) $414,000, which is the closest to the calculated budgeted cash collections for the third quarter.

Brown Company Has Developed the Following Sales Projections for the Calendar