Budgeted sales in Allen Company over the next four months are given below:

September October November December
$100,000 $160,000 $180,000 $120,000

Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale, 30% are collected in the month following sale, and 15% are collected in the second month following sale. The remainder are uncollectible. Given these data, cash collections for December should be:

A. $138,000B. $133,500C. $120,000D. $103,500

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Kolawole845 Kolawole845 · Answer 1 · 2020-04-07T05:39:16+02:00

Answer:

Cash collections for December should be $103,500

Explanation:

As a percentage of any sales is usually made on account which is 75%. The cash collection shall be received in categories as follows:

Cash collection on account $

Month of sale

50% × 75% December Sales =

50% × (100-25)% × 120,000 = 45,000

One month after sales

30% × 75% × November sales

30% × 75% × 180,000 = 40,500

2 months after sales

15% × 75% × October sales

15% × 75% × 160,000 = 18,000

103,500

Cash collections for December should be $103,500