Hiruit company\'s sales in December were $5,500. It expects sales to increase 10

Question

Hiruit company's sales in December were $5,500. It expects sales to increase 10% in January and February and 15% in March. All of its sales are made on credit. The typical collection pattern is: Collections In month of sale In second month In third month Not collectible Percentage of total receivables 10% 7000 15% 5% Gross margin is 30%. Inventory levels at the end of December are $900 and are expected to grow at the same rate as sales. Purchases are paid for the month after they are made. Net accounts receivable at the end of December are $400.

Explanation / Answer

17. Correct answer is Option A

Anticipated Inventory Level at the end of March = $900 x 1.1 x 1.1 x 1.15

.....................................................................................= $1,252.35

18. Correct Answer is Option B

Ending Inventory at the end of January = $900 x 1.1

......................................................................= $990

Ending Inventory at the end of February = $990 x 1.1

......................................................................= $1,089

Sales in February = $5,500 x 1.1 x 1.1

.............................= $6,655

Cost of Goods Sold in February = $6,655 x 70%

....................................................= $4,658.5

Purchases in February = Closing Inventory + Cost of Goods Sold - Opening Inventory

.....................................= $1,089 + $4,658.5 - $990

.....................................= $4,757.5

19. Correct answer is Option C

Net Account Receivable in the end of March = (March Sale x 90%) + (February Sale x 20%)

........................................................................= ($5,500 x 1.1 x 1.1 x 1.15 x 90%) + ($5,500 x 1.1 x 1.1 x 20%)

........................................................................= ($7,653.25 x 90%) + ($6,655 x 20%)

.........................................................................= $6,887.93 + $1,331

.........................................................................= $8,218.93

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