Question

A company is formulating its plans for the coming year, including the preparation of its cash budget. Historically, the company's sales are 30% cash. The remaining sales are on credit with the following collection pattern: Collections on Account Percentage In the month of sale 40%
In the month following the sale 58%
Uncollectible 2%
Sales for the first 5 months of the coming year are forecast as follows:

January $3,500,000
February 3,800,000
March 3,600,000
April 4,000,000
May 4,200,000
For the month of April, the total cash receipts from sales and collections on account would be

a. $3,729,968
b. $3,781,600
c. $4,025,200
d. $4,408,000

Answer 1

Answer:

c. $4,025,200

Explanation:

The computation of the total cash receipts from sales and collections in April month is shown below:

= April sales × cash sales percentage + April sales × credit sales percentage × collection month percentage + March sales  credit sales percentage × Following month collection percentage

= $4,000,000 ×30% + $4,000,000 × 70% × 40% + $4,200,000 × 70% × 58%

= $1,200,000 + $1,120,000 + $1,705,200

= $4,025,200

Since cash sales are 30% , so the credit sales would be 70%