The following information pertains to question 3 to 9. The February operating bu
ID: 2569066 • Letter: T
Question
The following information pertains to question 3 to 9. The February operating budget for Big Ben Boats shows the following figures:
Budgeted sales for February $100 000 and for March $200 000.
Collections for sales are 70% in the month of sale and 30% the month after the sale.
Gross margin is 30% of sales.
Administrative costs are $10 000 each month.
Beginning accounts receivable is $20 000.
Beginning inventory is $14 000.
Beginning accounts payable is $60 000. (All from inventory purchases.)
Purchases are paid in full the month following the purchase.
Desired ending inventory is 20% of next month's cost of goods sold (COGS).
3) For February, budgeted cash collections are:
Select one:
a. $170 000
b. $90 000
c. $20 000
d. $100 000
Explanation / Answer
Calculation of Budgeted Cash Collections
Particulars
Calculation
Amount
Cash Receipts:
January Sales
Total of opening accounts Receivable
20,000
February Sales
(100,000 x 70%)
70,000
Total Cash Receipts(A)
90,000
Cash Disbursements:
Inventory purchase of Jan
Total of Accounts payable
60,000
Administrative Costs
Assumed to be paid in the month
10,000
Total Cash Disbursements(B)
70,000
Net Cash Collections(A-B)
20,000
Correct Answer is C
Calculation of Closing Inventory = 20% of next month COGS
March COGS = $200,000 x 70% = $140,000
Closing Inventory for Feb = 20% x $140,000 = $28,000
Opening Inventory = $14,000
COGS of current month = $100,000 x 70% = $70,000
Opening Inventory + Purchase – Closing Inventory = COGS
Purchase = COGS + Closing Inventory – Opening Inventory
= 70,000 + 28,000 – 14,000 = $84,000
Particulars
Calculation
Amount
Cash Receipts:
January Sales
Total of opening accounts Receivable
20,000
February Sales
(100,000 x 70%)
70,000
Total Cash Receipts(A)
90,000
Cash Disbursements:
Inventory purchase of Jan
Total of Accounts payable
60,000
Administrative Costs
Assumed to be paid in the month
10,000
Total Cash Disbursements(B)
70,000
Net Cash Collections(A-B)
20,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.