At January 1, 2010, Estrada, Inc. has beginning inventory of 2,000 surfboards. Estrada estimates it will sell 5,000 units during the first quarter of 2010 with a 12% increase in sales each quarter. Estrada's policy is to maintain an ending inventory equal to 25% of the next quarter's sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2010?
A) $225,000
B) $975,000
C) $940,800
D) $6,272

Question

Quizplus · Accepted Answer

First, we need to calculate the expected sales for each quarter:

Q1: 5,000 surfboards
Q2: 5,000 x 1.12 = 5,600 surfboards
Q3: 5,600 x 1.12 = 6,272 surfboards

Next, we need to calculate the ending inventory for Q1 and Q2:

Ending inventory for Q1 = 0.25 x 5,600 = 1,400 surfboards
Ending inventory for Q2 = 0.25 x 6,272 = 1,568 surfboards

Finally, we can calculate the budgeted sales revenue for Q3:

Total surfboards for sale in Q3 = expected sales for Q3 + ending inventory from Q2
Total surfboards for sale in Q3 = 6,272 + 1,568 = 7,840

Budgeted sales revenue for Q3 = total surfboards for sale in Q3 x selling price per surfboard
Budgeted sales revenue for Q3 = 7,840 x $150 = $1,176,000

However, we need to adjust for the cost of the surfboards:
Cost of surfboards = total surfboards for sale in Q3 x cost per surfboard
Cost of surfboards = 7,840 x $100 = $784,000

Budgeted sales revenue for Q3 = $1,176,000 - $784,000 = $392,000
Therefore, the answer is C) $940,800.