Question

Copper Corporation has the following sales budget for the last six months of 2016:

July	$200,000	October	$180,000
August	160,000	November	200,000
September	220,000	December	188,000

Historically, the cash collection of sales has been as follows:
65 percent of sales collected in month of sale,
25 percent of sales collected in month following sale,
8 percent of sales collected in second month following sale, and
2 percent of sales is uncollectable.


Cash collections for October are

		$117,000.
		$174,000.
		$184,800.
		$199,000.
		$176,400.

Answer 1

The Correct Answer is $184,800.

To calculate the cash collections of October we need to understand what sales collection will be received in October

As per the information given in the question

• 65 percent of sales collected in month of sale - This means (65% of $180,000) will be collected during the month of October. 65% of $180,000 = $117,000.
• 25 percent of sales collected in month following sale - This means 25% of the sales made in September will also be collected during October. 25% of $220,000 = $55,000.
• 8 percent of sales collected in second month following sale - This means 8% of the sales made in August will also be collected during October. 8% of $160,000 = $12,800.

Therefore cash collections of October is

= $117,000 + $55,000+ $12,800

= $184,800