Figure 8-6
The records of Morgantown, Inc. show the following forecasted sales:
Collection pattern:
60 percent in month of sale
40 percent in month following the sale
Accounts receivable as of August 31 $70,000 Finished goods inventory as of August 31 8,000 units
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?

Question

Figure 8-6
The records of Morgantown, Inc. show the following forecasted sales:
  Collection pattern:
60 percent in month of sale
40 percent in month following the sale
Accounts receivable as of August 31 $70,000 Finished goods inventory as of August 31 8,000 units
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 in September = (60% x $600,000) + (40% x $360,000) = $360,000 + $144,000 = $504,000

We also know that the company expects to maintain ending inventories equal to 20% of next month's sales. Therefore, the ending inventory for September will be 20% x $504,000 = $100,800.

To calculate the expected sales for October, we need to subtract the expected ending inventory for September from the expected sales for September:
Expected sales in October = $504,000 - $100,800 = $403,200

Finally, to calculate the expected collections in October, we need to multiply the expected sales in October by the collection pattern:
Expected collections in October = (60% x $403,200) + (40% x $241,920) = $241,920 + $96,768 = $338,688

Therefore, the answer is B) $460,000.

Figure 8-6 The Records of Morgantown, Inc. Show the Following Forecasted Sales