At January 1, 2016, Ceatric, Inc.has beginning inventory of 10,000 boogie boards.Ceatric estimates it will sell 7,000 units during the first quarter of 2016 with a 7% increase in sales each quarter.Ceatric's policy is to maintain an ending inventory equal to 14% of the next quarter's sales.Each surfboard costs $95 and is sold for $130.How much is budgeted sales revenue for the third quarter of 2016?

Question

Quizplus · Accepted Answer

First, let's calculate the number of boogie boards that Ceatric expects to sell in each quarter:

- Q1: 7,000 units
- Q2: 7,490 units (7% increase from Q1)
- Q3: 8,011 units (7% increase from Q2)
- Q4: 8,564 units (7% increase from Q3)

Now, let's calculate the ending inventory for each quarter:

- Q1: 14% of Q2 sales = 1,048 units
- Q2: 14% of Q3 sales = 1,122 units
- Q3: 14% of Q4 sales = 1,198 units
- Q4: no ending inventory, as this is the last quarter

Using this information, we can calculate the number of units Ceatric needs to produce (i.e. the number of units they need to sell plus the ending inventory):

- Q1: 7,000 + 1,048 - 10,000 = -1,952 units (negative means they have excess inventory)
- Q2: 7,490 + 1,122 - 1,048 = 7,564 units
- Q3: 8,011 + 1,198 - 1,122 = 8,087 units
- Q4: 8,564 - 1,198 = 7,366 units

Since Ceatric has excess inventory in Q1, they will not produce any additional units in that quarter. Therefore, we only need to calculate the cost of producing and selling units in Q2, Q3, and Q4:

- Q2: 7,564 units * $95 = $717,980 (cost of goods sold)
       7,564 units * $130 = $983,320 (revenue)
       $983,320 - $717,980 = $265,340 (gross profit)
- Q3: 8,087 units * $95 = $768,065 (cost of goods sold)
       8,087 units * $130 = $1,050,310 (revenue)
       $1,050,310 - $768,065 = $282,245 (gross profit)
- Q4: 7,366 units * $95 = $699,670 (cost of goods sold)
       7,366 units * $130 = $959,580 (revenue)
       $959,580 - $699,670 = $259,910 (gross profit)

Finally, we can add up the revenue from each quarter to get the total budgeted sales revenue for the third quarter of 2016:

$983,320 (Q2 revenue) + $1,050,310 (Q3 revenue) + $959,580 (Q4 revenue) = $2,993,210

Therefore, the correct answer is C) $1,041,859.