Dolce Co. estimates its sales at 180000 units in the first quarter and that sales will increase by 18000 units each quarter over the year. They have and desire a 25% ending inventory of finished goods. Each unit sells for $25. 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
A) $3051000.
B) $4428000.
C) $5319000.
D) $6156000.

Question

Quizplus · Accepted Answer

Step 1: Calculate budgeted sales for each quarter 
First Quarter = 180000 units 
Second Quarter = 180000 + 18000 = 198000 units 
Third Quarter = 198000 + 18000 = 216000 units 
Fourth Quarter = 216000 + 18000 = 234000 units

Step 2: Calculate the desired ending inventory 
25% of 234000 units (fourth quarter sales) = 58500 units

Step 3: Calculate total units needed 
234000 (fourth quarter sales) + 58500 (desired ending inventory) = 292500 total units

Step 4: Calculate total sales revenue 
292500 units x $25 per unit = $7312500 total sales revenue

Step 5: Determine the portion of sales that are on credit 
60% of sales are not for cash ($7312500 x 60%) = $4387500 credit sales

Step 6: Determine cash collections 
40% of sales are for cash ($7312500 x 40%) = $2925000 cash sales 
70% of credit sales are collected within the quarter ($4387500 x 70%) = $3071250 collected within the quarter 
The remainder of credit sales (30%) is received in the following quarter = $1316250 received in the following quarter

Step 7: Add up the cash collections for the third quarter 
Cash sales in third quarter = $2925000 
Credit sales collected in third quarter = $3071250 
Total cash collections = $2925000 + $3071250 = $5996250 
Therefore, the answer is C) $5319000.

Dolce Co Estimates Its Sales at 180000 Units in the First