(CA)The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days)net/60 (full amount due within 60 days). Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold. Terms for sales on account are 2/10 (2% discount if paid within 10 days), net/30 (full amount due in 30 days). Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%).
Forecasted sales data and cost of sales for selected months are as follows:
Sales on
Account (Gross)Cash Sales Cost of Goods sold
December $1,900,000 $400,000 $1,840,000
January 1,500,000 250,000 1,400,000
February 1,700,000 350,000 1,640,000
March 1,600,000 300,000 1,520,000
(Appendix 10A)Forecasted sales discounts to be taken by customers making remittances during February are:
A)$5,250
B)$15,925
C)$30,500
D)$11,900
E)None of the above

Question

Quizplus · Accepted Answer

The forecasted sales discounts for February are calculated based on the collections from January sales and February sales. For January sales, 45% are collected in February, with 10% of these subject to a 2% discount. For February sales, 50% are collected in February, with 70% of these subject to a 2% discount. Calculating these discounts gives $30,500.

(CA)The Dilly Company Marks Up All Merchandise at 25% of Gross