The following information has been provided by Zeppelin Corporation:
Budgeted sales for January and February are $240,000 and $280,000, respectively.
Budgeted inventory purchases for January and February are $120,000 and $168,000, respectively.
40% of purchases are paid for during the month of purchase and the remaining 60% are paid for during the subsequent month.
10% of sales are collected during the month of sale and the remaining 90% are collected during the subsequent month.
Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $72,000 monthly and include depreciation expense of $14,000. Operating costs are paid for in the month that they are incurred.
The cash balance on February 1st was $20,000. Zeppelin's goal is to maintain at least a $20,000 cash balance. Zeppelin can borrow cash in increments of $1,000.
How much cash is budgeted to be paid in February for operating costs?

Question

Quizplus · Accepted Answer

Operating costs for February include variable costs (25% of February sales of $280,000 = $70,000) and fixed costs ($72,000, excluding depreciation since it's a non-cash expense). Therefore, total operating costs paid in February = $70,000 + $72,000 = $142,000. However, since depreciation is a non-cash expense, we subtract it from the total ($142,000 - $14,000 = $128,000).

The Following Information Has Been Provided by Zeppelin Corporation