Budgeted sales in Allen Pharmaceutical Company over the next four months are giv

Question

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

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 June should be:

March April May June Budgeted sales $140,000 $200,000 $220,000 $160,000

Explanation / Answer

Cash sales for June=(160000*25%)=$40000

Hence cash collections for June=Cash sales for June+(Credit sales of June*0.5)+(MayCredit sales*0.3)+(AprilCredit sales*0.15)

=40000+(120000*0.5)+(165000*0.3)+(150000*0.15)

which is equal to

=$172000.

Credit sales(75%) March (140000*75%)=$105000 April (200,000*75%)=$150,000 May (220,000*75%)=$165000 June (160000*75%)=$120000

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