Question

Swifty Corporation estimates its sales at 140000 units in the first quarter and that sales will increase by 13000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

Cash collections for the third quarter are budgeted at

Answer 1

Estimated sales of first quarter = 140,000 units

Estimated sales of second quarter = 140,000+13,000

= 153,000 units

Estimated sales of third quarter = 140,000+13,000+13,000

= 166,000 units

Selling price per unit = $35

As 40% of sales were for cash and 70% of credit sales were collected in same quarter cash collection for third quarter were budgeted as follows

Budgeted cash collections = cash sales of the quarter + 70% of credit sales of the quarter + 30% of credit sales of previous quarter

= (166,000*35)*40% + ((166,000*35)*60%)*70% + ((153,000*35)*60%)*30%

= 2,324,000+2,440,200+963,900

= $5,728,100.

Cash collections for the third quarter are budgeted at $5,728,100