Question

Silver Company makes a product with peak sales in May of each year. Its sales budget for the second quarter is given below:

April/ May /June/ Total
Budgeted sales (all on account) $300,000/ $500,000 /$200,000/ $1,000,000
The company estimates 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.

Required:
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

Answer 1

To prepare a schedule of expected cash collections from sales for Silver Company, we need to calculate how much cash is expected to be collected each month from sales made in the current month, as well as from sales made in the previous months.

Let's summarize how collections are expected to occur based on the information provided:

1. **Current Month Sales (20%)**: Collected in the month of sale.
2. **Previous Month Sales (70%)**: Collected in the month following the sale.
3. **Second Previous Month Sales (10%)**: Collected in the second month following the sale.

### Given Sales Data
- **February Sales**: $230,000
- **March Sales**: $260,000
- **April Sales**: $300,000
- **May Sales**: $500,000
- **June Sales**: $200,000

### Schedule of Expected Cash Collections

Let's break down the cash collections month by month, taking into account the rules stated above.

#### For April
1. From February Sales (10%):
\( 230,000 \times 10\% = 23,000 \)
2. From March Sales (70%):
\( 260,000 \times 70\% = 182,000 \)
3. From April Sales (20%):
\( 300,000 \times 20\% = 60,000 \)

**Total Cash Collections for April:**
\( 23,000 + 182,000 + 60,000 = 265,000 \)

#### For May
1. From March Sales (10%):
\( 260,000 \times 10\% = 26,000 \)
2. From April Sales (70%):
\( 300,000 \times 70\% = 210,000 \)
3. From May Sales (20%):
\( 500,000 \times 20\% = 100,000 \)

**Total Cash Collections for May:**
\( 26,000 + 210,000 + 100,000 = 336,000 \)

#### For June
1. From April Sales (10%):
\( 300,000 \times 10\% = 30,000 \)
2. From May Sales (70%):
\( 500,000 \times 70\% = 350,000 \)
3. From June Sales (20%):
\( 200,000 \times 20\% = 40,000 \)

**Total Cash Collections for June:**
\( 30,000 + 350,000 + 40,000 = 420,000 \)

### Summary of Expected Cash Collections Schedule

| Month | Expected Cash Collections |
|-----------|--------------------------|
| April | $265,000 |
| May | $336,000 |
| June | $420,000 |
| **Total** | **$1,021,000** |

Thus, the total expected cash collections from sales for the second quarter is **$1,021,000**.