Section A

AgriCorp expects sales of $100,000 in March, $120,000 in April, and $150,000 in May. Customers pay 40% in the month of sale, 50% in the month following the sale, and 8% two months after the sale (2% are bad debts). What are the expected cash receipts from sales in May?

Answer options:

$150,000

$128,000

$120,000

$130,000

How to approach this question

Calculate the cash collected in May from May's sales, April's sales, and March's sales based on the given percentages. Sum them up.

Full Answer

B.$128,000✓ Correct

Cash receipts in May: From May sales: 40% * $150,000 = $60,000. From April sales: 50% * $120,000 = $60,000. From March sales: 8% * $100,000 = $8,000. Total = $60,000 + $60,000 + $8,000 = $128,000. Bad debts do not result in cash flow.

Common mistakes

Including bad debts as cash, or misaligning the months.

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Practice the full ACCA MA — Management Accounting Practice Exam 3

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