Meyerhoff Company has the following budgeted sales: July $100,000, August $150,000, and September $125,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during September are
A) $140,000.
B) $132,500.
C) $131,250.
D) $125,000.

Question

Quizplus · Accepted Answer

Cash sales in July = $100,000 x 0.4 = $40,000
Cash sales in August = $150,000 x 0.4 = $60,000

Credit sales in July = $100,000 x 0.6 = $60,000
50% of credit sales in July collected in July = $60,000 x 0.5 = $30,000
50% of credit sales in July collected in August = $60,000 x 0.5 = $30,000

Credit sales in August = $150,000 x 0.6 = $90,000
50% of credit sales in August collected in August = $90,000 x 0.5 = $45,000
50% of credit sales in August collected in September = $90,000 x 0.5 = $45,000

Total cash receipts in September = cash sales in July + cash sales in August + 50% of credit sales in July collected in August + 50% of credit sales in August collected in September
= $40,000 + $60,000 + $30,000 + $45,000
= $175,000
Total expected cash receipts during September = $175,000 - $43,500 (50% of credit sales in September) = $131,500
Therefore, the best choice is B ($132,500).

Meyerhoff Company Has the Following Budgeted Sales: July $100,000, August