Reference: 07-02
Justin's Plant Store, a Retailer, Started Operations on January

question 51

Multiple Choice

Reference: 07-02
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below. $$\begin{array} { | l | l | } \hline & \text { Expected Sales } \\\hline \text { January } & \$ 10,000 \\\hline \text { February } & 24,000 \\\hline \text { March } & 16,000 \\\hline \text { April } & 25,000 \\\hline\end{array}$$ The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the
next month's merchandise sales (stated at cost) . All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of
the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
-In a budgeted income statement for the month of February, net income would be:

• A)$0.
• B)$1,800.
• C)$9,000.
• D)$4,200.

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Definitions:

Levied

Levied refers to the imposition of a tax, fee, or fine by a governmental authority, requiring payment from individuals or organizations.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity supplied by producers over a period of time.

Levied

Imposed by authority, typically referring to taxes, fees, or fines.

Total Surplus

The combined total of producer and consumer surplus, indicating the overall net gain for society from producing and consuming a product or service.