Question

1. Archer Electronics is preparing its annual budget, and your department is working on the cash flow budget. Here is selected information you have:

Description	June	July	August
Sales	$348,000	$438,000	$450,000

1. The company makes 10% of its sales for cash and 90% on credit. Of the credit sales, 20% are collected in the month after the sale and 80% are collected two months after. The cash receipts for August are:

	A.	Not enough information to solve the problem
	B.	$326,000
	C.	$374,400
	D.	$366.000
	E.	No answers are correct

Answer 1

Solution :

As per the information given in the question we have

a.10 % of the sales are made in cash and 90 % sales are made in credit

b.20 % Of the credit sales are collected in the month after the sale. Thus the sales amount collected in the month after the sale = ( 20 % * 90 % ) = 18 %

c.The balance of 80 % of credit sales are collected two months after the sale. Thus the sales amount collected two months after the sale = ( 80 % * 90 % ) = 72 %

We know that the month wise sales are as follows:

June = $ 348,000   ;    July = $ 438,000   ; August = $ 450,0000   ;

Thus from the above information it can be inferred that:

The amount of cash received in the month of August will be:

= 10 % of sales of August + 18 % of sales of July + 72 % of sales of June

Applying the available information we have the amount of cash received in the month of August as follows:

= ( $ 450,000 * 10 % ) + ( $ 438,000 * 18 % ) + ( $ 348,000 * 72 % )

= $ 45,000 + 78,840 + $ 250,560

= $ 374,400

Thus the cash receipts for August are = $ 374,400

The solution is option C. $ 374,400