2. (ch 8) Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: l_ Budgeted sales $300,000 $500,000 $200,000 $1,000,000 (all on account) From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the moth 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 a. Prepare a schedule of expected cash collection from sales, by month and in total, for the second quarter. April May June Total February sales: $230,000 X 10% ....................................... $ 23,000 5 23,000 March sales: $260,000 X 70%, 10% ....................................... 182,000 5 26,000 208,000 April sales: $300,000 X 20%, 70%, 10% .............................. 60,000 210,000 $ 30,000 300,000 May sales: $500,000 x 20%, 70% ....................................... 1 00,000 350,000 45 0,000 June sales: $200,000 X 20%.... 40,000 40,000 Total cash collections ............... $265 000 $336,000 $420,000 $1,021,000 Observe that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the companys customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest