Reference: 07-03
Information on the Actual Sales and Inventory Purchases

question 35

Multiple Choice

Reference: 07-03
Information on the actual sales and inventory purchases of the Law Company for the first quarter follows: $$\begin{array} { | l | l | l | } \hline & \text { Sales } & \begin{array} { l } \text { Inventory } \\\text { Purchases }\end{array} \\\hline \text { January } & \$ 120,000 & \$ 60,000 \\\hline \text { February } & \$ 100,000 & \$ 78,000 \\\hline \text { March } & \$ 130,000 & \$ 90,000 \\\hline\end{array}$$ Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of $100,000. Operating expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining operating expenses are variable with respect to the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March
1 was $43,000, and on April 1 was $35,000.
-The expected cash collections from customers during April would be:

• A)$117,600.
• B)$150,000.
• C)$139,000.
• D)$137,000.

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Definitions:

Total Cost

The sum of fixed and variable costs incurred by a business in the production of goods or services.

Profit

The financial gain achieved when the revenue gained from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Economic Profit

The disparity between total income and total outlays, considering both manifest and concealed costs.

(P - ATC)q

The formula representing profit in economic terms, where P stands for price, ATC for average total cost, and q for quantity produced or sold.