6 . T he data bellow regards The Bag House, a store that sells bags. Budgeted sa

Question

6 . T he data bellow regards The Bag House, a store that sells bags.

Budgeted sales (credit) : for January, February, and March are $420,000, $310,000 and $280,000. Budgeted collections :

60% in month of sale, 30% in following month, and 10% uncollectable. Cost of goods sold :

50% of sales. Purchases of merchandize : 30% in month prior to sale, and 70% in month of sale. Payment for purchases :

80% in month of purchase and 20% in following month. Selling and administra tive costs :

$32,500 paid in cash monthly. Depreciation of office equipment: $21,500 monthly.

6 A. What is February’s net income (loss) before interest and taxes?

A. $68,500

B. $89,000

C. $75,500

D. $70,000

E. None of the above   

Explanation / Answer

Answer = d) $ 70,000

February's net income (loss) before interest and taxes =

Sales = 310000

Less- Cost of goods sold = 155000 ( 310000 * 0.50 )

Contribution = 155000

Less- Bad debt expense = 31000 (310000 * 0.10)

Less- Selling and administrative expense = 32500

Less- Depreciation expense = 21500

Net Income (loss) before interst and taxes = $ 70,000

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