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 September are

		$199,000.
		$240,000.
		$204,000.
		$161,400.
		$143,000.

Answer 1

The Correct Answer is $199,000.

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

As per the information given in the question

• 65 percent of sales collected in month of sale - This means (65% of $220,000) will be collected during the month of September. 65% of $220,000 = $143,000.
• 25 percent of sales collected in month following sale - This means 25% of the sales made in August will also be collected during September. 25% of $160,000 = $40,000.
• 8 percent of sales collected in second month following sale - This means 8% of the sales made in July will also be collected during September. 8% of $200,000 = $16,000.

Therefore cash collections of September is

= $143,000 + $40,000 + $16,000

= $199,000