Feeney Furniture prepared the following sales budget: Credit collections are 15% two months following the sale, 50% in the month following the sale and 30% in the month of sale. The remaining 5% is expected to be uncollectible.
What are the total cash collections in May?

Question

Feeney Furniture prepared the following sales budget:  Credit collections are 15% two months following the sale, 50% in the month following the sale and 30% in the month of sale. The remaining 5% is expected to be uncollectible.
What are the total cash collections in May?

Quizplus · Accepted Answer

To calculate the cash collections for May, we need to look at the sales made in March and April, as they are the sales whose collections will fall in May.

From the sales budget, we can see that the sales in March are $40,000 and the sales in April are $90,000.

For March: 
- 30% will be collected in March = $12,000 
- 50% will be collected in April = $20,000 
- 15% will be collected in May = $6,000 
- 5% is uncollectible

Total cash collection for sales made in March = $12,000 + $20,000 + $6,000 = $38,000

For April: 
- 30% will be collected in April = $27,000 
- 50% will be collected in May = $45,000 
- 15% will be collected in June = $13,500 
- 5% is uncollectible

Total cash collection for sales made in April = $27,000 + $45,000 + $13,500 = $85,500

Therefore, total cash collections in May = cash collections from March sales + cash collections from April sales that will be collected in May 
= $20,000 (from March sales) + $45,000 (from April sales) 
= $65,000

Adding back the uncollectible amount, we get 
$65,000 ÷ 0.95 = $68,421.05

Thus, the closest option is option B - $63,500

Feeney Furniture Prepared the Following Sales Budget: Credit Collections