Elm Company makes a product that has peak sales in September of each year. The company has prepared a sales budget for the third quarter of 2003, as shown below.
July August September
Budgeted sales $500,000 $600,000 $750,000
The company is in the process of preparing a cash budget for the third quarter and must determine the cash collections by month. Collections on sales are expected to be as follows.
70% in the month of sale
20% in the month following the month of sale
8% in the second month following the month of sale
The accounts receivable balance as of June 30 is $195,000, of which $45,000 represents uncollected May sales and $150,000 represents uncollected June sales.
a. What were the total sales for May and June?
b. What are the expected cash collections for each month of the third quarter.
The question mentions that the uncollected sales proceeds for May are 45,000 so the total sales of May are 100/10 x 45,000 because this is 10% of the total sales. So May sales = $450,000.