Feeney Furniture prepared the following sales budget: Credit collections are 10% two months following the sale, 40% in the month following the sale and 40% in the month of sale. The remaining 10% is expected to be uncollectible.
What are the total cash collections in May at Feeney Furniture?

Question

Feeney Furniture prepared the following sales budget:  Credit collections are 10% two months following the sale, 40% in the month following the sale and 40% in the month of sale. The remaining 10% is expected to be uncollectible.
What are the total cash collections in May at Feeney Furniture?

Quizplus · Accepted Answer

To find the total cash collections in May, we need to look at the sales that were made in March and April (since collections are 10% two months following the sale).

From the sales budget, we can see that the total sales in March were $60,000 and the total sales in April were $165,000.

For March sales, 40% will be collected in April ($24,000) and the remaining 60% will be collected in May ($36,000 x 0.6 = $21,600).

For April sales, 40% will be collected in May ($66,000 x 0.4 = $26,400) and 10% will be collected two months later in July ($66,000 x 0.1 = $6,600).

Adding up all the collections in May: $24,000 + $21,600 + $26,400 = $72,000.

However, we also know that 10% of sales are expected to be uncollectible. So, the actual cash collections in May would be: $72,000 - ($60,000 x 0.1) - ($165,000 x 0.1) = $58,900.

Therefore, the answer is B.

Feeney Furniture Prepared the Following Sales Budget: Credit Collections