Question

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:
April May June Total
Budgeted sales (all on account) $390,000 $590,000 $230,000 $1,210,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $320,000, and March sales totaled $350,000. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Answer 1

Answer:

$1,259,500

Explanation:

Expected cash Collections :

April

= (April sales × 25%) + (March sales × 60%) + (February sales × 15%)

= (390,000 × 25%) + ($350,000 × 60%) + ($320,000 × 15%)

= $97,500 + $210,000 + $48,000

= $355,500

May

= (May sales × 25%) + (April sales × 60%) + (March sales × 15%)

= ($590,000 × 25%) + (390,000 × 60% ) + ($350,000 × 15%)

= $434,000

June

= (June sales × 25%) + (May sales × 60%) + (April sales × 15%)

= ($230,000 × 25%) + ($590,000 × 60%) + (390,000 × 15%)

= $470,000

Total sales collection for second quarter:

= $355,500 + $434,000 + $470,000

= $1,259,500