Kevin Montgomery Retail Seeks Your Assistance to Develop Cash and Other

question 22

Multiple Choice

Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:
SALES:
Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts) . 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.
PURCHASES:
The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units) . The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.
Actual and projected sales are as shown below:
$$\begin{array} { l l l } & \text { Dollars } & \text { Units } \\\text { March } & \$ 472,000 & 11,800 \\\text { April } & \$ 484,000 & 12,100 \\\text { May } & \$ 476,000 & 11,900 \\\text { June } & \$ 456,000 & 11,400 \\\text { July } & \$ 480,000 & 12,000 \\\text { August } & \$ 480,000 & 12,200\end{array}$$
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What are the budgeted merchandise purchases (in dollars) for May?

• A) $338,250.
• B) $355,500.
• C) $357,000.
• D) $375,750.

Understand the concept of sales mix and its impact on break-even analysis.

Calculate the target after-tax net income and understand the impact of income taxes on financial planning.

Analyze the effect of changes in fixed and variable costs on the break-even point.

Understand the sales mix ratio and its application in break-even analysis in composite units.

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Definitions:

Marginal Cost

The additional cost incurred by producing one more unit of a product.

Total Revenue

The overall amount of money generated by a company from its sales of goods or services, before any expenses are subtracted.

Total Output

The total amount of goods and services produced by an economy or firm.

Marginal Product

The extra production achieved by the utilization of an additional unit of a specific input while keeping all other inputs unchanged.