(Appendix 10A)Gold Company has the following balances at December 31, 20x0: 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: January $ 50,000
February 90,000
March 60,000
April 100,000
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 amortization
*All costs are paid in the month incurred
*Minimum cash balance requirement is $6,000
What is the budgeted cost of purchases for February?
A)$19,200
B)$30,400
C)$15,000
D)$52,800

Question

Quizplus · Accepted Answer

The budgeted cost of purchases for February is $19,200. This is calculated as follows:* Budgeted sales for February: $90,000* Cost of goods sold: 40% of sales = $36,000* Ending inventory: 140% of March's cost of sales = $140% x $24,000 = $33,600* Purchases: Beginning inventory + cost of goods sold - ending inventory = $40,000 + $36,000 - $33,600 = $42,400* Purchases paid in February: 70% of purchases = $42,400 x 70% = $29,680* Purchases paid in March: 30% of purchases = $42,400 x 30% = $12,720* Budgeted cost of purchases for February: $29,680 + $12,720 = $19,200

(Appendix 10A)Gold Company Has the Following Balances at December 31