Orchard has forecast sales to be $250,000 in February,$270,000 in March,$300,000 in April,and $280,000 in May.The average cost of goods sold is 70% of sales.All sales are made on credit and sales are collected 60% in the month of sale,and 40% the month following.What is the budgeted Accounts Receivable balance on May 31?

Question

Quizplus · Accepted Answer

To calculate the budgeted Accounts Receivable balance on May 31, we need to consider the sales made in May and the portion of April sales that are collected in May. Sales in May are $280,000, but since all sales are on credit and only 40% of sales are collected the month following, we only consider 40% of April's sales ($300,000 * 40% = $120,000) to be part of May's Accounts Receivable. Therefore, the total Accounts Receivable on May 31 is the sum of 40% of April's sales and 100% of May's sales, which are not collected by May 31. However, since the question asks for the Accounts Receivable balance, we only consider the uncollected portion of sales, which means we only consider 40% of April's sales, as May's sales would be collected in the future (June and onwards). Thus, the Accounts Receivable on May 31 is $120,000 (40% of April's $300,000 sales). This calculation oversight in the explanation led to an incorrect conclusion. The correct calculation should include 60% of May's sales still outstanding at the end of May plus the 40% of April's sales not yet collected by the end of May. Therefore, the correct Accounts Receivable balance on May 31 should include both these amounts: 60% of May's sales ($280,000 * 60% = $168,000) plus 40% of April's sales ($300,000 * 40% = $120,000). However, the initial calculation provided was incorrect in the explanation phase, leading to a misunderstanding of the correct answer. The correct approach to find the Accounts Receivable balance on May 31 involves calculating the portion of sales from April and May that remains uncollected by the end of May, considering the company's credit collection pattern.

Orchard Has Forecast Sales to Be $250,000 in February,$270,000 in March,$300,000