Question

Marigold Corp. estimates its sales at 250000 units in the first quarter and that sales will increase by 25000 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

$8610000.

$5932500.

$10342500.

$11970000.

Answer 1

As per the company's policy, they make 40% sale as a cash sale and 60% credit sale. Among these 60% credit sale, 70% are received within the year i.e. 70% of 60% = 42% of total sale of quarter and 30% are received in the next quarter i.e. 30% of 60% = 18% of total sale of quarter .

Sales of third quarter = (250,000 + 25,000+25,000)units * $35 = $10,500,000

Sale of second quarter = (250,000+25,000) units * $35 = $9,625,000

So the collections in the third quarter will be as follows :

40% of total sale of third quarter = $10,500,000*40% = $4,200,000

70% of credit sale of third quarter = 42% of total sale of third quarter = 42% of $10,500,000 = $4,410,000 and

30% of credit sale of second quarter = 18% of total sale of second quarter = 18% of $9,625,000 = $1,732,500

Hence total collection in the third quarter = $4,200,000 + $4,410,000 + $1,732,500 = $10,342,500

Hence option c i.e. $10,342,500 is the correct answer.