Budgeted sales in Allen Company over the next four months are given below: Twenty-five percent of the company's sales are for cash and 75% are on credit.Collections for sales on credit follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale,30% are collected in the month following sale,and 15% are collected in the second month following sale.The remainder are uncollectible.Given these data,cash collections in December should be?

Question

Budgeted sales in Allen Company over the next four months are given below:  Twenty-five percent of the company's sales are for cash and 75% are on credit.Collections for sales on credit follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale,30% are collected in the month following sale,and 15% are collected in the second month following sale.The remainder are uncollectible.Given these data,cash collections in December should be?

Quizplus · Accepted Answer

To find out the cash collections in December, we need to first calculate the total credit sales for the months of September to December, which are as follows:

September: $300,000 x 0.75 = $225,000 (credit sales)
October: $350,000 x 0.75 = $262,500 (credit sales)
November: $400,000 x 0.75 = $300,000 (credit sales)
December: $450,000 x 0.75 = $337,500 (credit sales)

Now, we need to find out the cash collected for each of these months. 50% of the sales for each month are collected in the same month, while 30% and 15% are collected in the following two months, respectively. The remainder are uncollectible. Therefore, the cash collections for each month are as follows:

September: ($225,000 x 0.5) = $112,500 (collected in September)
October: ($262,500 x 0.5) + ($225,000 x 0.3) = $131,250 + $67,500 = $198,750 (collected in October and November)
November: ($300,000 x 0.5) + ($262,500 x 0.3) + ($225,000 x 0.15) = $150,000 + $78,750 + $33,750 = $262,500 (collected in November and December)
December: ($337,500 x 0.5) + ($300,000 x 0.3) + ($262,500 x 0.15) = $168,750 + $90,000 + $39,375 = $298,125 (collected in December and January)

Therefore, the total cash collected in December will be:

Cash collections in December = Cash collected from September sales + Cash collected from October sales + Cash collected from November sales + Cash collected from December sales = $112,500 + $0 + $0 + $298,125 = $410,625

However, we need to remember that only 25% of the company's sales are for cash. Therefore, we need to adjust this amount accordingly:

Actual cash collections in December = Cash collections in December x 0.25 = $410,625 x 0.25 = $102,656.25 ≈ $103,500

Therefore, the correct answer is option C, $133,500, and none of the given options are correct.

Budgeted Sales in Allen Company Over the Next Four Months