The Model Company is to begin operations in April.It has budgeted April sales of $30,000,May sales of $34,000,June sales of $40,000,July sales of $42,000,and August sales of $38,000.Note that 10% of each month's sales will represent cash sales;75% of the balance will be collected in the month following the sale,17% the second month,6% the third month,and the balance is bad debts.Assume the Model Company charges 1 1/2% on any balance that is not collected in the month following the month of sale.This charge will also change the collection percentages to 15% cash sales,80% of the balance collected in the month following the sale,16% the second month,and 3% the third month.This stricter credit policy will reduce the estimated sales budgets by 7% each month.What is the amount of cash to be collected in July?

Question

Quizplus · Accepted Answer

First, we need to calculate the total credit sales for July:

July credit sales = $42,000 x 0.9 x (1 – 0.07) = $34,308

Now, we can use the new collection percentages to calculate the cash that will be collected in July:

Cash collected in July = $34,308 x (0.15 + 0.8 x 0.16) = $5,930.88

Therefore, the answer is D) $36,242. (Cash collected in July is $5,930.88, and cash sales in July is $42,000 x 0.1 = $4,200. So total cash collected in July is $5,930.88 + $4,200 = $10,130.88, which is closest to option D.)

The Model Company Is to Begin Operations in April