The following sales budget has been prepared:
Collections are 50 percent in the month of sale, 40 percent in the month following the sale, and 5 percent two months following the sale. The remaining 5 percent is expected to be uncollectible.
-The total cash collections in August will be

Question

The following sales budget has been prepared:
  Collections are 50 percent in the month of sale, 40 percent in the month following the sale, and 5 percent two months following the sale. The remaining 5 percent is expected to be uncollectible.
-The total cash collections in August will be

Quizplus · Accepted Answer

To calculate the cash collections in August, we need to look at the sales made in June and July (two months prior to August).

The sales made in June = $200,000 x 50% = $100,000 
The sales made in July = $240,000 x 50% + $200,000 x 40% = $120,000 + $80,000 = $200,000

Total cash collections in August = ($100,000 x 5%) + ($200,000 x 5%) = $5,000 + $10,000 = $15,000

Therefore, the total cash collections in August will be $165,000 (100,000 + 200,000 + 15,000 - 5,000). The correct answer is C.

The Following Sales Budget Has Been Prepared