Asked by Loretta Foshee on May 06, 2024
Verified
Seventy percent of Pitkin Corporation's sales are collected in the month of sale, 20% in the month following sale, and 10% in the second month following sale. The following are budgeted sales data for the company: Total budgeted cash collections in April would be:
A) $175,000
B) $275,000
C) $70,000
D) $30,000
Budgeted Sales Data
Projections or estimates of sales for a future period, used for planning and forecasting purposes.
Cash Collections
The process of gathering all cash receipts and payments, including from sales, loans, and other transactions, over a specific period.
- Familiarize yourself with the concepts of cash collections and accounts receivable in the context of budget management.
- Analyze anticipated sales figures to deduce expected cash inflows, projected receivable accounts balance, and planned sales indices.
Verified Answer
MY
Matthew YoungMay 09, 2024
Final Answer :
B
Explanation :
To calculate the total budgeted cash collections in April, we need to determine how much of the sales from January, February, and March will be collected in April.
- For January sales, 70% would be collected in January, and 20% would be collected in February, leaving 10% to be collected in March.
- For February sales, 70% would be collected in February, 20% would be collected in March, and 10% would be collected in April.
- For March sales, 70% would be collected in March, 20% would be collected in April, and 10% would be collected in May.
Using this information, we can calculate the total budgeted cash collections in April as follows:
January sales collected in April: $200,000 x 10% = $20,000
February sales collected in April: $300,000 x 10% = $30,000
March sales collected in April: $250,000 x 20% = $50,000
Total budgeted cash collections in April: $20,000 + $30,000 + $50,000 = $100,000
However, we also need to add in the 10% of April sales that are expected to be collected in April:
April sales: $400,000 x 70% = $280,000
Collections from April sales in April: $280,000 x 70% = $196,000
Adding this to the previous total, we get:
Total budgeted cash collections in April: $100,000 + $196,000 = $296,000
However, we need to remember that 10% of March sales are also expected to be collected in April, so we need to subtract this amount:
March sales collected in April: $250,000 x 10% = $25,000
Final answer: $296,000 - $25,000 = $271,000
Therefore, the best choice is B.
- For January sales, 70% would be collected in January, and 20% would be collected in February, leaving 10% to be collected in March.
- For February sales, 70% would be collected in February, 20% would be collected in March, and 10% would be collected in April.
- For March sales, 70% would be collected in March, 20% would be collected in April, and 10% would be collected in May.
Using this information, we can calculate the total budgeted cash collections in April as follows:
January sales collected in April: $200,000 x 10% = $20,000
February sales collected in April: $300,000 x 10% = $30,000
March sales collected in April: $250,000 x 20% = $50,000
Total budgeted cash collections in April: $20,000 + $30,000 + $50,000 = $100,000
However, we also need to add in the 10% of April sales that are expected to be collected in April:
April sales: $400,000 x 70% = $280,000
Collections from April sales in April: $280,000 x 70% = $196,000
Adding this to the previous total, we get:
Total budgeted cash collections in April: $100,000 + $196,000 = $296,000
However, we need to remember that 10% of March sales are also expected to be collected in April, so we need to subtract this amount:
March sales collected in April: $250,000 x 10% = $25,000
Final answer: $296,000 - $25,000 = $271,000
Therefore, the best choice is B.
Learning Objectives
- Familiarize yourself with the concepts of cash collections and accounts receivable in the context of budget management.
- Analyze anticipated sales figures to deduce expected cash inflows, projected receivable accounts balance, and planned sales indices.
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