ExpertHard1 markMultiple Choice
CPA · Question 09 · Area I: Business Analysis
A company's sales are 30% cash and 70% credit. Credit sales are collected: 60% in the month of sale, 30% in the month following, and 10% in the second month following. <br/>Sales data:<br/>January: $100,000<br/>February: $120,000<br/>March: $150,000<br/><br/>Calculate the total cash collections expected in March.
A company's sales are 30% cash and 70% credit. Credit sales are collected: 60% in the month of sale, 30% in the month following, and 10% in the second month following. <br/>Sales data:<br/>January: $100,000<br/>February: $120,000<br/>March: $150,000<br/><br/>Calculate the total cash collections expected in March.
Answer options:
A.
$138,000
B.
$139,100
C.
$108,000
D.
$145,000
How to approach this question
Break down sales into Cash and Credit. Map the credit collection percentages to the months. Sum the components collected in the target month.
Full Answer
B.$139,100✓ Correct
March Cash Sales: $150,000 * 30% = $45,000.<br/>Credit Collections in March:<br/>- From March Credit Sales ($105,000): 60% = $63,000<br/>- From Feb Credit Sales ($84,000): 30% = $25,200<br/>- From Jan Credit Sales ($70,000): 10% = $7,000<br/>Total = $45,000 + $63,000 + $25,200 + $7,000 = $140,200.
Common mistakes
Applying collection percentages to Total Sales instead of Credit Sales; missing the cash sales component.
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