At January 1 2016 Deer Corp. has beginning inventory of 2000 surfboards. Deer estimates it will sell 10000 units during the first quarter of 2016 with a 12% increase in sales each quarter. Deer's policy is to maintain an ending inventory equal to 25% of the next quarter's sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2016?
A) $450000
B) $1950000
C) $1881600
D) $12544

Question

Quizplus · Accepted Answer

1. First Quarter Sales:
Beginning Inventory: 2000 
Sales: 10,000 
Ending Inventory: (25% of next quarter's sales): 3,000 
Total Units Needed: 10,000 + 3,000 - 2,000 = 11,000 
Total Sales Revenue: 10,000 x $150 = $1,500,000

2. Second Quarter Sales:
Beginning Inventory: 3,000 
Sales: 10,000 x 1.12 = 11,200 
Ending Inventory: (25% of next quarter's sales): 2,800 
Total Units Needed: 11,200 + 2,800 - 3,000 = 10,000 
Total Sales Revenue: 11,200 x $150 = $1,680,000

3. Third Quarter Sales:
Beginning Inventory: 2,800 
Sales: 11,200 x 1.12 = 12,544 
Ending Inventory: (25% of next quarter's sales): 3,136 
Total Units Needed: 12,544 + 3,136 - 2,800 = 13,880 
Total Sales Revenue: 12,544 x $150 = $1,881,600

Therefore, the answer is C, $1,881,600.