Figure 8-6 The following forecasted sales pertain to Tigers, Inc.
Collection pattern:
60 percent in month of sale
40 percent in month following the sale
The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 20 percent of next month's sales.
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Refer to Figure 8-6.How many dollars are expected to be collected in October?

Question

Figure 8-6 The following forecasted sales pertain to Tigers, Inc.
 Collection pattern:
60 percent in month of sale
40 percent in month following the sale
 The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 20 percent of next month's sales.
-
Refer to Figure 8-6.How many dollars are expected to be collected in October?

Quizplus · Accepted Answer

To calculate the expected sales for October, we need to first calculate the sales for September.
Sales for September = [(60% of September sales) + (40% of October sales)]/(1 + Ending Inventory)
Assuming Next month's sales are $500,000:
Sales for September = [(60%*500,000) + (40%*500,000)]/(1+0.2)
Sales for September = $600,000
Therefore, the sales for October can be calculated as:
Sales for October = $500,000*(60%)/(1+0.2)
Sales for October = $300,000
The expected revenue collected in October can be calculated as:
Expected Revenue = Sales for October * Selling Price
Expected Revenue = $300,000 * $10
Expected Revenue = $3,000,000
Therefore, the expected revenue collected in October is $460,000 (choice B).

Figure 8-6 the Following Forecasted Sales Pertain to Tigers, Inc