Jumbotron Inc. had sales of $8,000 in November, $14,000 in December, and projects sales of $10,000 for January, $12,000 for February, and $8,000 for March. The ﬁrm's cost of goods sold
Every month is equal to 70% of the next month's sales. The ﬁrm collects its receivables in 60 days
And pays its payables in 30 days. The ﬁrm begins January 1 with $10,000 in cash. All sales and
Purchases are on credit.
What are Jumbotron's total cash disbursements in March?

Question

Quizplus · Accepted Answer

To calculate cash disbursements in March, we need to first calculate the cost of goods sold for each month:

- December cost of goods sold = 70% x $10,000 (January sales) = $7,000
- January cost of goods sold = 70% x $12,000 (February sales) = $8,400
- February cost of goods sold = 70% x $8,000 (March sales) = $5,600

Next, we need to calculate the accounts payable for each month, which will be paid in the following month:

- December accounts payable = $7,000 x 30/360 = $583.33
- January accounts payable = $8,400 x 30/360 = $700
- February accounts payable = $5,600 x 30/360 = $466.67

Now we can calculate the cash disbursements for March:

- Cash disbursements = cost of goods sold + accounts payable - increase in accounts payable
- Cost of goods sold for March = $5,600
- Accounts payable for March = $0 (no purchases made in March)
- Increase in accounts payable from February to March = $466.67 (February accounts payable not paid until March)
- Cash disbursements = $5,600 + $0 - $466.67 = $5,133.33, which is closest to option B: $5,600.