Justin\'s Plant Store, a retailer, started operations on January 1. On that date
ID: 2569575 • Letter: J
Question
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below. Expected Sales January $10,000 February 24,000 March 16,000 April 25,000 The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
1. In a budgeted income statement for the month of February, net income would be: a. $9,000. b. $1,800. c. $0. d. $4,200.
2 In a budgeted balance sheet, the Merchandise Inventory on February 28 would be: a. $4,800. b. $7,500. c. $9,600. d. $3,200.
3 The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet would be: a. $15,000. b. $16,000. c. $8,800. d. $12,400. 4 In a budget of cash receipts for March, the total cash receipts would be: a. $17,800. b. $8,200. c. $20,200. d. $16,000.
5 In a budget of cash disbursements for March, the total cash disbursements would be: a. $11,200. b. $13,900. c. $22,300. d. $16,900.
Explanation / Answer
Q1: Answer is D. $4200
The explanation is as follows:
Budgeted sales for Feb Month $ 24,000
Less: Cost of goods sold(24000*60%) = 14400
Gross margin $9600
Less: Operating expense
Variable(10% of 24000) $2400
Fixed $3000
Net income for feb month $ 4200
Q 2. Answer is A. $ 4800
Explanation isa s follows:
Expected sales of march $ 16,000
Cost of goods sold of March (16000*60%) 9600
Therefore, Inventory for feb month end (which is 50% of next month of cost of goods soldi.e. 9600 ) $ 4800
Q 3. Answer is C. $ 8800
Explanation is as follows:
Accounts receivable for Macrh end is as follows:
Accounts receivable for feb sales (24000*40% *25% ) = $ 2400
Accounts receivablefor march month (16000*40%) = $ 6400
Total accounts receivable at the end of march $ 8800
Q 4. Answer is A. $17,800
Explanation is as follows:
Cash receipts for march:
Collections from jan sales(10,000*40%*25%) = $1,000
Collections from Feb sales (24,000*40%*75%)= $ 7,200
Collections from march sales(16000*60%) = $ 9,600
Total collections from march month = $ 17,800
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