Answer:
The correct answer is:
$8,274,000 (A)
Explanation:
First of all, let us calculate the total sales in units for each of the quarters:
First quarter sales = 200,000 units
Sales increase by 20,000 each quarter;
∴ Second quarter sales = 200,000 + 20,000 = 220,000 units
Third quarter sales = 220,000 + 20,000 = 240,000 units
Next, let us calculate the Total sales in dollars for each of the quarters at $35 each:
Total sales in dollars for second quarter = 35 × 220,000 = $7,700,000
Total sales in dollars for the third quarter = 35 × 240,000 = $8,400,000
Next, we are told that the 40% of sales are for cash (hence 60% of sales are for credit), and 70% of credit sales are paid collected within the quarter of sale, while the remainder (30%)are collected in the month following sale, hence calculating cash collections for third quarter:
From second quarter sales
Total sales for second quarter = $7,700,000
amount of sales in credit = 60% of 7,700,000 = 0.60 × 7,700,000 = $4,620,000
out of this credit sale, 70% is collected in the quarter of sale (second quarter), while 30% is collected in the third quarter.
∴ Cash collected in third quarter, from second quarter sale= 30% of $4,620,000
= 30/100 × 4,620,000 = 0.3 × 4,620,000 = $1,386,000
From third quarter sales
Total sales in third quarter = $8,400,000
amount of sale in cash = 40% of $8,400,000 = 0.4 × 8,400,000 = $3,360,000
amount of sale collected in credit = 60% of 8,400,000 = 0.6 × 8,400,000 = $5,040,000
percentage of credit sale collected within the quarter of sale = 70% of credit sale
= 0.7 × 5,040,000 = $3,528,000
Therefore Total cash collections in the third quarter = credit collected from second quarter + amount of sale in cash in third quarter + amount of credit sale collected in third quarter
= 1,386,000 + 3,360,000 + 3,528,000 = $8,274,000
