(Appendix 10A)Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: March April May June July August
Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000
Costs:
Wages 1,500 2,000 2,500 1,500
Rent 500 500 500 500
Other 400 500 600 500
Cash disbursements in July for purchases are expected to be:
A)$43,000
B)$16,000
C)$22,000
D)$21,000

Question

Quizplus · Accepted Answer

To calculate cash disbursements for purchases in July, we need to first determine the purchases made in June. Purchases are equal to cost of goods sold, which is 50% of sales. Therefore:

March purchases = $5,000
April purchases = $10,000
May purchases = $15,000
June purchases = $15,000
Total purchases = $45,000

Since payments for purchases are made in the month after purchase, we will be paying for June purchases in July. Therefore, cash disbursements for purchases in July will be $15,000 (June purchases) + $30,000 (July purchases) = $45,000.

The correct answer is C) $22,000.

(Appendix 10A)Conner Company Is a Medium-Sized Toy Distributor