Answer:
The Cash collections for the third quarter are budgeted at $8,274,000
Explanation:
For computing the cash collections, following steps is required which is described below:
1. Compute the second and third-year sales units:
Since in the question, it is said that the sales units are increased by 20,000 for each quarter.
So,
Second quarter sales units = First Quarter sales units + increase units
= 200,000 + 20,000
= 220,000
And, the third quarter sales units = Second quarter sales units + increased units
= 220,000 + 20,000
= 240,000
2. Calculate the sales value of second and third quarter:
Second quarter sales value = Sales units of second quarter × selling price per unit
= 220,000 × $35
= $7,700,000
And, the third quarter sales value = Sales units of third quarter × selling price per unit
= 240,000 × $35
= $8,400,000
3. Compute the cash sales and credit sales as per the given proportion which is mentioned in the question :
For third quarter:
Cash sales = 40% of third quarter sales revenue
= 40% × $8,400,000
= $3,360,000
Since 40% is the cash sales, so 60% is the credit sales
Therefore, the credit sales based on third quarter sales revenue
= 60% × 70% × third quarter sales revenue
= 60% × 70% × $8,400,000
= $3,528,000
And, the credit sales based on second quarter sales revenue
= 60% × 70% × second quarter sales revenue
= 60% × 30% × $7,700,000
= $1,386,000
So, the total cash collection would be equal to
= Cash collection of third quarter + credit sales based on second quarter sales revenue + credit sales based on third quarter sales revenue
= $3,360,000 + $1,386,000 + $3,528,000
= $8,274,000
Hence, the Cash collections for the third quarter are budgeted at $8,274,000
