Question

Seventy percent of Pluto Corporation's sales are collected in the month of sale, 20% in the month following sale, and 10% in the second month following sale. All sales are on account. The following are budgeted sales data for the company:

	January			February		March		April
Budgeted sales	$200,000			$300,000		$350,000		$250,000

Total budgeted cash collections in April would be:

Answer 1

Answer:

In this problem, the cash collection of April should be ascertained. As stated 70% of the current month's sale is collected in the month itself. In April total sale is $250,000. Thus 70% of $ 250,000 is $175,000 is collected in April.

Next, consider the previous month's sale. The previous month is March, Its sale is $350,000. 20% of this sale is collected in next month i.e. in April. Hence amount collected is $350,000 * 20%=$70,000.

Finally, consider the previous second month's sale. It is in February. The sale is $300,000. 10% of this amount is collectible in April. The amount is $300,000 x 10%= $30,000. Thus total collection in April is as shown in the table below:

Details	January	February	March	April
Sales	$200,000	$300,000	$350,000	$250,000
70% of current April sale				$175,000
20% of March sale				$70,000
10% of February sale				$30,000
Total collection of April				$275,000

Budgeted cash collection in April is $275,000.