Pluto,Inc. has a beginning cash balance of $430 on February 1^st. The firm has projected sales of $600 in January,$800 in February and $900 in March. The cost of goods sold is equal to 70% of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 15 days. The firm has monthly cash expenses of $180. What is the projected ending cash balance at the end of February? Assume that every month has 30 days.

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for each month:
- COGS for January = 70% x $600 = $420 (purchase made in December with 30 days credit)
- COGS for February = 70% x $800 = $560 (purchase made in January with 30 days credit)
- COGS for March = 70% x $900 = $630 (purchase made in February with 30 days credit)

Next, we can calculate the expected cash inflows and outflows for each month:
- February cash inflows = sales in February = $800
- February cash outflows = COGS for January ($420) + cash expenses ($180) = $600
- March cash inflows = sales in March = $900
- March cash outflows = COGS for February ($560) + cash expenses ($180) = $740

Using the accounts receivable and payable periods, we can calculate the expected collections and payments for each month:
- February collections = 15/30 x $800 = $400
- February payments = 30/30 x $420 = $420
- March collections = 15/30 x $900 = $450
- March payments = 30/30 x $560 = $560

Now, we can calculate the expected ending cash balance for February:
Beginning cash balance ($430) + February inflows ($800) - February outflows ($600) - February payments ($420) + February collections ($400) = $610

Therefore, the projected ending cash balance at the end of February is $610, which is closest to option C ($390).

Pluto,Inc Has a Beginning Cash Balance of $430 on February