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    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
    2% uncollictible

    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.

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    Solution Preview

    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.
    The ...