Korn, Inc, Projects Sales for Its First Three Months of Operation

question 117

Multiple Choice

Korn, Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
What is the projected cost of purchases for October?

• A) $80,000
• B) $93,333
• C) $120,000
• D) $180,000

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Definitions:

Willingness to Pay

The maximum amount an individual is prepared to spend to procure a good or service, reflecting their valuation of it.

Buyer

An individual or entity that purchases goods or services for personal use or consumption.

Good

Represents a tangible product or service that satisfies some human want or need.

Complements

Goods or services that are used together, such that an increase in demand for one typically increases demand for the other.