Sales Are 30% Cash and 70% on Account, and 60

question 29

Multiple Choice

$$\begin{array} { l c c c c c } & \text { January } & \text { February } & \text { March } & { \text { April } } \\\text { Sales } & \$ 26,400 & \$ 23,100 & \$ 33,000 & \$ 25,000 \\\text { Production in units } & 990 & 1,440 & 1,710 & 1,200\end{array}$$ Sales are 30% cash and 70% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 30% of credit sales are collected. The remainder is collected two months after the sale. It takes 4 kilograms of direct material to produce a finished unit, and direct materials cost $5 per kilogram. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 50% the following month, and 10% in the second month following the purchase. Ending direct materials inventory for each month is 40% of the next month's production needs. January's beginning materials inventory is 1,080 kilograms. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.
(Appendix 10A) The net change in cash for the period January - March is:

• A) $4,500 decrease
• B) $339 increase
• C) $5,811 increase
• D) $1,222 decrease

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Definitions:

Income

The money received, especially on a regular basis, for work or through investments.

Capital Balances

Represents the amount of money that owners have invested in a company minus any withdrawals they have made from the company.

Salary Allowances

Fixed sums or benefits paid in addition to a base salary, often determined by specific terms of employment.

Capital Accounts

Accounts that track the equity ownership of partners or shareholders in a business, reflecting contributions, withdrawals, and the share of profits or losses.