(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r }
\text { January } & \$ 50,000 \
\text { February } & 90,000 \
\text { March } & 60,000 \
\text { April } & 100,000
\end{array}$$ Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred.
*Minimum cash balance requirement is $6,000.
The cash disbursements for purchases in March are:
A) $46,400
B) $32,480
C) $38,240
D) $48,720

Question

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r } 
\text { January } & \$ 50,000 \
\text { February } & 90,000 \
\text { March } & 60,000 \
\text { April } & 100,000
\end{array}$$ Other  data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred.
*Minimum cash balance requirement is $6,000.
The cash disbursements for purchases in March are:
A) $46,400
B) $32,480
C) $38,240
D) $48,720

Quizplus · Accepted Answer

To calculate the cash disbursements for purchases in March, we need to determine the purchases for February and March, considering the payment terms. The cost of goods sold (COGS) is 40% of sales, and ending inventory must be 140% of the next month's COGS. For February, COGS is 40% of $90,000 = $36,000. The ending inventory for February (which is the beginning inventory for March) needs to be 140% of March's COGS (40% of $60,000) = $33,600. The purchases for February are calculated based on the need to reach the desired ending inventory level, considering the beginning inventory and COGS for February. Similarly, for March, we calculate purchases to ensure the ending inventory is 140% of April's COGS (40% of $100,000). The cash disbursements for March include 70% of March's purchases and 30% of February's purchases.

(Appendix 10A) Gold Company Has the Following Balances at December