Answer:
The answer is b) $5,319,000.
Explanation:
We have cash collection in third quarter will include:
+ 40% of sales in third quarter which is made in cash;
+ 70% of the remaining 60% of credit sales in third quarter which is collected within the quarter;
+ The remaining 30% of 60% credit sales in second quarter which is collected in third quarter.
We also have:
Sales in second quarter (units) = 180,000 + 18,000 = 198,000 units => Sales revenue = 198,000 x 25 = $4,950,000 => Cash collection in third quarter = 30% x (60%x 4,950,000) = $891,000;
Sales in third quarter (units) = 198,000 + 18,000 = 216,000 units => Sales revenue = 216,000 x 25 = 5,400,000 => Cash collection in third quarter = 0.4 x 5,400,000 + 0.7 x (0.6 x 5,400,000) = $4,428,000
=> Total cash collection in third quarter = 891,000 + 4,428,000 = $5,319,000
