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Ratchet Manufacturing anticipates total sales for August, September, and October of $200,000,...

Question:

Ratchet Manufacturing anticipates total sales for August, September, and October of $200,000, $210,000, and $220, 500 respectively. Cash sales are normally 25% of total sales and the remaining sales are on credit. All credit sales are collected in the first month after the sale. Compute the amount of cash received for September.

a. $150,000.

b. $202,500.

c. $157,500.

d. $102,500.

e. $307,500.

Cash Collections:

Companies often extend credit to customers and allow them to pay for purchased merchandise at a later date. An accounts receivable is thus established for these customers. A cash budget must be maintained to keep up with expected cash receipts for the month.

Answer and Explanation:

Answer: b. $202,500.

Explanation:

Given information:

  • September sales = $210,000
  • Cash sales = 25% of total sales
  • Credit sales collected in the first month after the sale

September cash sales can be calculated as:

$210,000 * .25 = $52,500

Collections from August credit sales can be calculated as:

$200,000 - ($200,000 * .25) = $150,000

Amount of cash received for September can be calculated as:

$52,500 + $150,000 = $202,500


Learn more about this topic:

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Cash Collection & Concentration: Definition & Components

from Finance 101: Principles of Finance

Chapter 18 / Lesson 3
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