Question

14.

A company estimates its sales at 180,000 units in the first quarter and that sales will increase by 18,000 units each quarter over the year. Each unit sells for $50. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remaining 30% is received in the quarter following the sale.

Cash collections for the third quarter are budgeted at

a. $6,102,000.

b. $8,856,000.

c. $10,638,000.

d. $12,312,000.

Answer 1

Sales in first year = 180,000*50 = 9,000,000

Sales in second quarter = (180,000+18,000)*50 = 9,900,000

Sales in third quarter = (180,000+18,000+18,000)*50 = 10,800,000

.

Cash collection in third quarter

= Cash sales in third quarter + third quarter credit sales collected in third quarter itself + second year credit sales collected in third quarter

= (10,800,000*40%) + (10,800,000*60%*70%) + (9,900,000*60%*30%)

= 4,320,000 + 4,536,000 + 1,782,000

= 10,638,000

Option C