Gold Company has the following balances at 31^st December 2010: 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: 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 depreciation
· All costs are paid in the month incurred
· Minimum cash balance requirement is $6,000
The cash disbursements for purchases in March are

Question

Gold Company has the following balances at 31^st December 2010: 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:

Gold Company has the following balances at 31<sup>st</sup> December 2010: 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: 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 depreciation · 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

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 depreciation
· All costs are paid in the month incurred
· Minimum cash balance requirement is $6,000
The cash disbursements for purchases in March are

Quizplus · Accepted Answer

We need to determine the cash disbursements for purchases in March.

First, we need to calculate the budgeted sales for January, which are not given in the information provided. However, we can use the accounts receivable balance to determine the total sales for December:

Total Sales for December = Accounts Receivable ($10,000 from November + $24,000 from December) / 0.6 (60% of sales on credit)

Total Sales for December = $56,667

Total Budgeted Sales for January = Total Sales for December / 1.1 (100% - 10% collected during the second month after sale)

Total Budgeted Sales for January = $51,515.15

Cash Sales = 40% of Total Budgeted Sales for January = 0.4 x $51,515.15 = $20,606.06

Credit Sales = Total Budgeted Sales for January - Cash Sales = $51,515.15 - $20,606.06 = $30,909.09

Cash Collections in January (from December credit sales) = 50% x $24,000 = $12,000

Cash Collections in February (from December credit sales) = 10% x $24,000 = $2,400

Cash Collections in February (from January credit sales) = 50% x $30,909.09 = $15,454.55

Total Cash Collections = Cash Sales + Cash Collections in January + Cash Collections in February = $20,606.06 + $12,000 + $2,400 + $15,454.55 = $50,460.61

Cost of Goods Sold = 40% x Total Budgeted Sales for January = 0.4 x $51,515.15 = $20,606.06

Ending Inventory = 140% x Cost of Goods Sold in February = 1.4 x 0.4 x $30,909.09 = $17,254.55

Merchandise Purchases in January = Cost of Goods Sold + Ending Inventory - Beginning Inventory = $20,606.06 + $17,254.55 - $40,000 = $-2,139.39 (negative value means there are enough goods in inventory to cover the cost of goods sold)

Merchandise Purchases in February = Cost of Goods Sold in March + Ending Inventory - Beginning Inventory = 0.4 x (Total Budgeted Sales for February) + $19,254.55 - $17,254.55 = $16,363.64

Cash Payments for January Purchases = 70% x Merchandise Purchases in January = 0.7 x $0 = $0 (negative value means there are enough goods in inventory to cover the cost of goods sold)

Cash Payments for February Purchases = 70% x Merchandise Purchases in February = 0.7 x $16,363.64 = $11,454.55

Total Cash Disbursements for Purchases in March = Cash Payments for February Purchases + 30% x Merchandise Purchases in February = $11,454.55 + 0.3 x $16,363.64 = $16,090.91

However, we also need to consider the 3% cash discount given on cash sales. Since Gold Company's minimum cash balance requirement is $6,000, we can assume that they want to take advantage of the discount and pay as many cash purchases as possible.

Therefore, we need to determine the maximum cash payments for March purchases that allow Gold Company to maintain a minimum cash balance of $6,000:

Maximum Cash Payments for March Purchases = Cash Collections in January + Cash Collections in February + Cash Sales - Minimum Cash Balance

Maximum Cash Payments for March Purchases = $12,000 + $2,400 + $20,606.06 - $6,000 = $28,006.06

Since the cash payments for February purchases are less than the maximum cash payments for March purchases, the answer is C) $38,240.

Gold Company Has the Following Balances at 31st December 2010

Gold Company Has the Following Balances at 31^st December 2010