Question

Avril Company makes collections on sales according to the following schedule: 25% in the month of sale 71% in the month following sale 4% in the second month following sale The following sales are expected: Expected Sales January $180,000 February $110,000 March $100,000 Cash collections in March should be budgeted to be:

Answer 1

Answer:

The correct answer is:

$110,300

Explanation:

This question is to test your ability to convert from percentages to actual amounts, so, to begin, we will first of all lay out the information given plainly.

• 25% in the month of sale = 0.25 × amount in the month of sale
• 71% in the month following sale = 0.71 × amount in the month following sale
• 4% in the second month following sale = 0.04 × amount in the second month following sale.

Next, we are asked to calculate the cash collections for the month of March. To do so, we are going to calculate the total cash collections accumulated from the sales in January to March, according to the information given in the list above. This is calculated as follows:

From January sales ($180,000)

March is the second month following January, hence, from the information given, 4% of the sales in January will be collected in March.

0.04 × 180,000 = $ 7,200

From February sales ($110,000)

March is the month following February, hence the amount of February sales collected in March is 71% of the sales in February. This is calculated as follows:

0.71 × 110,000 = $78,100

From March sales ($100,000)

The Percentage of sale from the month of sale is 25%, therefore, the amount collected in March from the sales for March is calculated as follows:

0.25 × 100,000 = $25,000

Finally, we will add the total amounts from the sales from January to March, and this is shown below:

7,200 + 78,100 + 25,000 = $110,300