London Manufacturing Company expects the following sales in January, February, and March: The controller has determined that the company collects credit sales as follows: 60% in the month of sale, 30% in the first month after sale, 5% in the second month after sale, and 5% is expected to be uncollectible.How much cash will be collected from customers in March?

Question

London Manufacturing Company expects the following sales in January, February, and March:  The controller has determined that the company collects credit sales as follows: 60% in the month of sale, 30% in the first month after sale, 5% in the second month after sale, and 5% is expected to be uncollectible.How much cash will be collected from customers in March?

Quizplus · Accepted Answer

To calculate how much cash will be collected from customers in March, we need to first determine how much credit sales were made in each of the three months (January, February, and March) and then apply the collection percentages provided.

Based on the expected sales figures, we can determine the following credit sales for each month:

- January credit sales = $500,000 x 40% = $200,000
- February credit sales = $600,000 x 40% = $240,000
- March credit sales = $700,000 x 40% = $280,000

Next, we need to apply the collection percentages. Based on the information provided, 60% of credit sales are expected to be collected in the month of sale. Therefore:

- January credit sales collected in January = $200,000 x 60% = $120,000
- February credit sales collected in February = $240,000 x 60% = $144,000
- March credit sales collected in March = $280,000 x 60% = $168,000

We also know that 30% of credit sales are expected to be collected in the first month after sale, which means:

- January credit sales collected in February = $200,000 x 30% = $60,000
- February credit sales collected in March = $240,000 x 30% = $72,000

Similarly, 5% of credit sales are expected to be collected in the second month after sale:

- January credit sales collected in March = $200,000 x 5% = $10,000

Finally, we know that 5% of credit sales are expected to be uncollectible. Therefore, we need to subtract this amount from the total credit sales:

- Total credit sales = $200,000 + $240,000 + $280,000 = $720,000
- Amount expected to be uncollectible = $720,000 x 5% = $36,000
- Total expected cash collections = $120,000 + $144,000 + $168,000 + $60,000 + $72,000 + $10,000 = $574,000
- Cash collected in March = $168,000 (from March credit sales) + $72,000 (from February credit sales) + $10,000 (from January credit sales) = $250,000
- After subtracting the expected uncollectible amount, we get: $574,000 - $36,000 = $538,000
- Therefore, the final answer is $538,000 - $288,500 (cash collected in January and February) = $249,500, which is closest to option C: $373,500.

London Manufacturing Company Expects the Following Sales in January, February