On January 1, 2016, Pearson Corp has beginning inventory of 240 surfboards. Pearson estimates it will sell 400 units during the first quarter of 2016 with a 5.00% increase in unit sales each quarter. Each surfboard is sold for $200.00. How much is budgeted sales revenue for the third quarter of 2016?

Pearson Corp

Budgeted Sales Revenue for the third quarter of 2016:

The budgeted sales revenue = $88,200 (441 x $200)

Explanation:

If First Quarter Sales = 400 units

Second Quarter Sales = 420 units (400 x 1.05)

Therefore, Third Quarter Sales = 441 units (420 x 1.05)

Another way to work it out is to compound the rate for two years:

(1.05)ⁿ = (1.05)∧2 = 1.1025

Sales in first quarter = 400 x $200 = $80,000

Sales in third quarter = $80,000 x 1.1025 = $88,200

The compounding of the rate of increase yield a compound factor that can be applied to the value of the sales in the first quarter to arrive at a sales value for the third quarter without working out the sales value for the second quarter also.

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