Bonita Industries estimates its sales at 160000 units in the first quarter and that sales will increase by 27000 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

$2981500.

$4387000.

$5228500.

$6613938.

The correct answer is $5,228,500

Explanation:

Solution

Given that:

The second Quarter sales = 160000 + 27000 = 187000 units

The credit sales of second quarter = (sales units*sales price) * (100% - 40%) = 187000 * $25 * 60% = $2,805,000.

Now,

The units of Third quarter sales = 187000 + 27000 = 214000 units

The cash Sales of third quarter = 214000*$25 * 40% = $2,140,000

Thus,

The credit sales of third quarter = 214000*$25 * 60% = 3,210,000

Hence,

The cash budgeted collection for third quarter = Cash sales of third quarter + (Credit sales of Third Quarter*70%) + (Credit sales of second quarter * 30%)

= $2,140,000 + ($3,210,000*70%) + ($2,805,000*30%)

= $2,140,000 + $2,247,000 + $841,500

= $5,228,500

Therefore the cash collections for the third quarter are budgeted at $5,228,500