Budgeted sales for ABC Company are as follows:
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:
A) $1 675 000
B) $1 875 000
C) $1 280 000
D) None of the given answers

Question

Budgeted sales for ABC Company are as follows: 
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:
A) $1 675 000 
B) $1 875 000 
C) $1 280 000 
D) None of the given answers

Quizplus · Accepted Answer

To calculate the budgeted total cash receipts for November, we need to first calculate the budgeted credit sales for October (since 35% of these sales will be collected in November) and November (since 60% of these sales will be collected in November).

October credit sales = $800,000 
November credit sales = $900,000

Total credit sales = $1,700,000 
Uncollectible amount = (1 - 0.60 - 0.35) x $1,700,000 = $255,000

So, the total cash receipts for November would be: 
November collections of October sales = 0.35 x $800,000 = $280,000 
November collections of November sales = 0.60 x $900,000 = $540,000 
Total collections = $280,000 + $540,000 = $820,000

Adding the cash sales (invoice cost plus 25%) of $1,055,000 to the total collections of $820,000, we get the budgeted total cash receipts for November to be $1,875,000. Therefore, the best choice is B.

Budgeted Sales for ABC Company Are as Follows