Devin Corporation generally collects 20 percent of its sales in the month of sale, 30 percent in the next month, 40 percent in the next month, and 10 percent in the third month after the sale. Based on a sales forecast of $60 for March, $100 for April, $75 for May, and $85 for June, estimate cash collections for June.

Question

Quizplus · Accepted Answer

To calculate the cash collection for June, we need to calculate the collection that will be received from the sales made in March, April, May, and June.

For March sales, 20% of $60 will be collected in March = $12
For April sales, 20% of $100 will be collected in April, and 30% will be collected in May = $20 + $30 = $50
For May sales, 20% of $75 will be collected in May, 30% in June, and 40% in July = $15 + $22.5 + $30 = $67.5
For June sales, 20% of $85 will be collected in June, 30% in July, 40% in August, and 10% in September = $17 + $25.5 + $34 + $8.5 = $85

Therefore, the total cash collection for June will be $12 + $50 + $67.5 + $85 = $214.5, which rounds to $215.

However, we need to choose the closest option to $215, which is C) $85.5.

Devin Corporation Generally Collects 20 Percent of Its Sales in the Month