Dove Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $250,000, $320,000, and $410,000, respectively, for September, October, and November. The company expects to sell 25% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale and 30% in the month following the sale.
The cash collections in November are
A) $317,750
B) $389,750
C) $490,000
D) $410,000

Question

Quizplus · Accepted Answer

Step 1: Calculate total budgeted sales for the three months:
September: $250,000
October: $320,000
November: $410,000
Total: $980,000

Step 2: Calculate the amount of sales to be made for cash:
$980,000 x 25% = $245,000

Step 3: Calculate the amount of sales on account for each month:
September:
Sales on Account = $250,000 - $62,500 = $187,500
Collections in September = $187,500 x 70% = $131,250
Collections in October = $187,500 x 30% = $56,250
Total Collections for September Sales on Account = $131,250 + $56,250 = $187,500

October:
Sales on Account = $320,000 - $80,000 = $240,000
Collections in October = $240,000 x 70% = $168,000
Collections in November = $240,000 x 30% = $72,000
Total Collections for October Sales on Account = $168,000 + $72,000 = $240,000

November:
Sales on Account = $410,000 - $102,500 = $307,500
Collections in November = $307,500 x 70% = $215,250
Collections in December = $307,500 x 30% = $92,250
Total Collections for November Sales on Account = $215,250 + $92,250 = $307,500

Step 4: Calculate total cash collections in November:
Cash Sales = $245,000
Collections for September Sales on Account = $187,500
Collections for October Sales on Account = $240,000
Collections for November Sales on Account = $307,500
Total Cash Collections in November = $245,000 + $187,500 + $240,000 + $307,500 = $979,000

Therefore, the correct answer is B) $389,750.

Dove Corporation Began Its Operations on September 1 of the Current