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:
$\begin{array}{ll}\text { Collections }&\text { Percentage of total receivables }\
\text { In month of sale } & 10 \% \
\text { In second month } & 70 \% \
\text { In third month } & 15 \% \
\text { Not collectible } & 5 \%
\end{array}$
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.
-What cash is paid for purchases in the month of March?

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:
$\begin{array}{ll}\text { Collections }&\text { Percentage of total receivables }\
\text { In month of sale } & 10 \% \
\text { In second month } & 70 \% \
\text { In third month } & 15 \% \
\text { Not collectible } & 5 \%
\end{array}$
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. 
-What cash is paid for purchases in the month of March?

Quizplus · Accepted Answer

To find the cash paid for purchases in March, we first need to calculate the sales for each month and then determine the cost of goods sold (COGS) based on the gross margin. The inventory increase must also be considered to find the total purchases.1. Calculate sales for January, February, and March:   - January: $5,500 * 110% = $6,050   - February: $6,050 * 110% = $6,655   - March: $6,655 * 115% = $7,653.252. Calculate COGS (since gross margin is 30%, COGS is 70% of sales):   - January COGS: $6,050 * 70% = $4,235   - February COGS: $6,655 * 70% = $4,658.50   - March COGS: $7,653.25 * 70% = $5,357.283. Calculate inventory increase (inventory grows at the same rate as sales):   - January inventory: $900 * 110% = $990   - February inventory: $990 * 110% = $1,089   - March inventory: $1,089 * 115% = $1,252.35   - Inventory increase from February to March: $1,252.35 - $1,089 = $163.354. Calculate purchases for March (COGS + inventory increase):   - Purchases for March = March COGS + Inventory increase from February to March   - Purchases for March = $5,357.28 + $163.35 = $5,520.63However, since none of the options exactly match this calculation and considering the question asks for cash paid for purchases in March, which would be based on February's purchases (since purchases are paid the month after they are made), we need to correct our approach based on the payment cycle provided.Given that purchases are paid for the month after they are made, the cash paid for purchases in March would actually reflect the purchases made in February. Therefore, we should look at February's COGS and inventory increase to find February's purchases, which are paid in March:- February's COGS: $4,658.50- Inventory increase from January to February: $1,089 - $990 = $99- February's purchases (paid in March) = February COGS + Inventory increase from January to February = $4,658.50 + $99 = $4,757.50Therefore, the correct answer is B) $4,757.50, reflecting the cash paid for February's purchases in March.

Hiruit Company's Sales in December Were $5,500 Gross Margin Is 30