Question

Silver Company makes a product with peak sales in May of each year. Its sales budget for the second quarter is given below:
May /June/
Budgeted sales (all on account) $500,000 /$200,000
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 the schedule of expected cash collections from sales for the second quarter (April, May, and June), we will use the given sales budget and the collection percentages.

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

### Collection Pattern:
- **20%** of a month’s sales are collected in the month of sale.
- **70%** are collected in the month following the sale.
- **10%** are collected in the second month following the sale.

### Schedule of Expected Cash Collections

1. **April Collections:**
- From February Sales (10%):
- 10% of $230,000 = $23,000
- From March Sales (70%):
- 70% of $260,000 = $182,000
- From April Sales (No sales budget provided, so $0):
- 20% of $0 = $0
- **Total Collections in April**:
- $23,000 + $182,000 + $0 = $205,000

2. **May Collections:**
- From March Sales (10%):
- 10% of $260,000 = $26,000
- From April Sales (70%):
- 70% of $0 = $0
- From May Sales (20%):
- 20% of $500,000 = $100,000
- **Total Collections in May**:
- $26,000 + $0 + $100,000 = $126,000

3. **June Collections:**
- From April Sales (10%):
- 10% of $0 = $0
- From May Sales (70%):
- 70% of $500,000 = $350,000
- From June Sales (20%):
- 20% of $200,000 = $40,000
- **Total Collections in June**:
- $0 + $350,000 + $40,000 = $390,000

### Summary Schedule of Expected Cash Collections

| Month | From February | From March | From April | From May | From June | Total Collections |
|------------|---------------|------------|------------|----------|-----------|-------------------|
| **April** | $23,000 | $182,000 | $0 | $0 | $0 | **$205,000** |
| **May** | $0 | $26,000 | $0 | $100,000 | $0 | **$126,000** |
| **June** | $0 | $0 | $0 | $350,000 | $40,000 | **$390,000** |
| **Total** | $23,000 | $208,000 | $0 | $450,000 | $40,000 | **$671,000** |

### Final Total Collections for the Second Quarter:
- **Total Expected Cash Collections for April, May, and June**: **$205,000 + $126,000 + $390,000 = $721,000**.

Thus, the total expected cash collections for the second quarter amount to **$721,000**.