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    Cash Collections and Production: Thorton Company Example

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    I am doing something wrong as I keep coming up with numbers that are too small for the cash collections and I believe that the answer for #2 is D, but I would just like a breakdown of the problem to make sure I am doing it right.

    Thorton Company estimates its sales at 80,000 units in the first quarter and that sales will increase by 8,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.

    1. Cash collections for the third quarter are budgeted at
    a. $1,356,000.
    b. $1,968,000.
    c. $2,364,000.
    d. $2,736,000.

    2. Production in units for the third quarter should be budgeted at
    a. 98,000.
    b. 92,000.
    c. 122,000.
    d. 96,000.

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    Solution Summary

    Provides steps necessary to determine cash collections and production.