Gallonte Inc. began operations in April of this year. It makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for May? $69,000. None of the answers is correct. $75,000. $60,000. $21,000.

$60,000.

Explanation:

Gallonte Inc.'s credit policy is to collect 30% of receivables in the month of sale, 60% in the following month, and 10% in the second following month. This means that 30% of the May sales will be collected in the same month, 60% will be collected in the month of June, and the remaining will be collected in the month of July. We are required to calculate the collection to be made in the month of May.

Based of the credit policy, the collections for the month of May will be as follows:

10% of March Sales - No Information Available

60% of April Sales = 60,000 * .6 = $36,000.

30% of May Sales  = 80,000 * .3 = $24,000.

⇒ Total Collection for May is $60,000 (36,000 + 24,000).