The following information pertains to the January operating budget for Casey Corporation.
-Budgeted sales for January $203,000 and February $101,000.
-Collections for sales are 60% in the month of sale and 40% the next month.
-Gross margin is 25% of sales.
-Administrative costs are $20,000 each month.
-Beginning accounts receivable is $28,000.
-Beginning inventory is $19,000.
-Beginning accounts payable is $75,000. (All from inventory purchases.)
-Purchases are paid in full the following month.
-Desired ending inventory is 20% of next month's cost of goods sold (COGS).
For January, budgeted net income is ________.
A) $50,750
B) $30,750
C) $101,800
D) $61,200

Question

Quizplus · Accepted Answer

To calculate the budgeted net income for January, we follow these steps:1. **Sales for January**: $203,000.2. **Collections**: 60% in January = $121,800 (60% of $203,000), and since beginning accounts receivable is $28,000, total collections for January = $121,800 + $28,000 = $149,800.3. **Cost of Goods Sold (COGS)**: Gross margin is 25% of sales, so COGS is 75% of sales = 0.75 * $203,000 = $152,250.4. **Desired Ending Inventory for January**: 20% of February's COGS. February's sales are $101,000, so COGS (75% of sales) = $75,750. Therefore, desired ending inventory = 20% of $75,750 = $15,150.5. **Inventory Purchases for January**: To calculate purchases, we use the formula: Beginning Inventory + Purchases - Ending Inventory = COGS. Rearranging for Purchases gives us Purchases = COGS - Beginning Inventory + Ending Inventory = $152,250 - $19,000 + $15,150 = $148,400.6. **Payments for Purchases in January**: Since purchases are paid in full the following month, there are no payments for January's purchases in January. The beginning accounts payable of $75,000 is paid in January.7. **Administrative Costs**: $20,000.8. **Net Income Calculation**: Net Income = Total Collections - COGS - Administrative Costs - Payments for Purchases. Here, Payments for Purchases refer to the payment of the beginning accounts payable, not the purchases made in January. So, Net Income = $149,800 - $152,250 - $20,000 - $75,000 = -$97,450. However, this calculation seems to have misunderstood the question's requirements regarding the calculation of net income, focusing instead on cash flow aspects. Let's correct the approach focusing on income statement elements:Corrected Approach:- **Revenue for January**: $203,000.- **COGS for January**: $152,250 (75% of sales).- **Gross Profit**: Revenue - COGS = $203,000 - $152,250 = $50,750.- **Administrative Costs**: $20,000.- **Net Income**: Gross Profit - Administrative Costs = $50,750 - $20,000 = $30,750.The correct answer is B) $30,750, based on the corrected approach focusing on the income statement perspective, which includes calculating gross profit and then subtracting the administrative costs to find the net income.

The Following Information Pertains to the January Operating Budget for Casey