Assume a company is preparing a budget for its first two months of operations. During the first and second months it expects credit sales of $48,000 and $76,000, respectively. The company expects to collect 60% of its credit sales in the month of the sale, 35% in the following month, and 5% is deemed uncollectible. What amount of cash collections from credit sales would the company include in its cash budget for the second month?单项选择题
A
$66,200
B
$45,600
C
$26,600
D
$62,400

Question

Assume a company is preparing a budget for its first two months of operations. During the first and second months it expects credit sales of $48,000 and $76,000, respectively. The company expects to collect 60% of its credit sales in the month of the sale, 35% in the following month, and 5% is deemed uncollectible. What amount of cash collections from credit sales would the company include in its cash budget for the second month?单项选择题

A

$66,200

B

$45,600

C

$26,600

D

$62,400

BlackTom AI · Accepted Answer

Cash collections in month 2 equal the portion of month‑2 credit sales collected in that month plus the portion of month‑1 credit sales collected in month‑2 (the remaining 5% is uncollectible and never collected).

Relevant concepts:
- Credit sales are collected over two periods: 60% in the month of sale and 35% in the following month.
- The 5% uncollectible portion is excluded from cash collections.
- For month 2 collections, include: 60% of month‑2 sales + 35% of month‑1 sales.

Step‑by‑step calculation with intermediate steps:
1. Month‑2 credit sales = $76,000. Amount collected in month of sale = 60% × $76,000.
   60% × $76,000 = 0.60 × 76,000 = $45,600.
2. Month‑1 credit sales = $48,000. Amount collected in the following month (month‑2) = 35% × $48,000.
   35% × $48,000 = 0.35 × 48,000 = $16,800.
3. Total cash collections from credit sales in month‑2 = $45,600 + $16,800 = $62,400.

Why this is correct:
These computations follow the company’s stated collection pattern, summing the portion of current month sales collected immediately with the portion of prior month sales collected in the second month. The 5% uncollectible portion is properly excluded.

Why the other options are incorrect:
- $66,200: does not match the correct split; it likely results from an arithmetic or percentage mix‑up and is not derived from 60% of month‑2 plus 35% of month‑1.
- $45,600: equals only 60% of month‑2 sales and ignores the 35% collected from month‑1.
- $26,600: equals 35% of month‑2 sales (0.35 × $76,000) and ignores the 60% current collection plus prior month collections.