Bear Inc. estimates its sales at 200000 units in the first quarter and that sales will increase by 20000 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
A) $4746000.
B) $6888000.
C) $8274000.
D) $9576000.

Question

Quizplus · Accepted Answer

Total sales for the year = 200000 + 220000 + 240000 + 260000 = 920000 units
Ending inventory for the year = 920000 x 25% = 230000 units

Total units available for sale = 920000 + 230000 = 1150000 units

Total sales revenue = 1150000 x $35 = $40,250,000

Cash sales = 40% x $40,250,000 = $16,100,000

Credit sales = $40,250,000 - $16,100,000 = $24,150,000

Amount received from credit customers within the quarter = 70% x $24,150,000 = $16,905,000

Amount received from credit customers in the following quarter = 30% x $24,150,000 = $7,245,000

Cash collections for the third quarter = Cash sales in third quarter + Amount received from credit customers within the quarter + Amount received from credit customers in the following quarter for sales made in the second quarter - Ending accounts receivable for the second quarter
= (20,000 x $35 x 40%) + $16,905,000 + $7,245,000 - (20,000 x $35 x 30%)
= $1,400,000 + $16,905,000 + $7,245,000 - $420,000
= $24,130,000

Therefore, the best choice is C.

Bear Inc Estimates Its Sales at 200000 Units in the First