The Dilly Company Marks Up All Merchandise at 25% of Gross

question 5

Multiple Choice

The Dilly Company marks up all merchandise at 25% of gross purchase price. All purchases are made on account with terms of 1/10, (1% discount if paid in 10 days) net/60 (full amount due within 60 days) . Purchase discounts, which are recorded as miscellaneous income, are always taken. Normally, 60% of each month's purchases are paid for in the first month after purchase, whereas the other 40% are paid during the first 10 days of the first month after purchase. Inventories of merchandise at the end of each month are kept at 30% of the next month's forecasted cost of goods sold.
Terms for sales on account are 2/10 (2% discount if paid within 10 days) , net/30 (full amount due in 30 days) . Cash sales are not subject to discount. Fifty percent of each month's sales on account are collected during the month of sale, 45% are collected in the succeeding month, and the remainder is usually uncollectible. Seventy percent of the collections in the month of sale are subject to discount, and 10% of the collections in the succeeding month are subject to discount (2%) .
Forecasted sales data and cost of sales for selected months are as follows: $\begin{array}{lrrr}&\text { Sales on }\\&\text { Account (Gross) }&\text { Cash Sales }&\text {Cost of Goods sold }\\\text { December } & \$ 1,900,000 & \$ 400,000 & \$ 1,840,000 \\\text { January } & 1,500,000 & 250,000 & 1,400,000 \\\text { February } & 1,700,000 & 350,000 & 1,640,000 \\\text { March } & 1,600,000 & 300,000 & 1,520,000\end{array}$

Assuming that all of the beginning inventory for December is sold, forecasted gross purchases for January are:

• A) $1,400,000
• B) $1,470,000
• C) $1,472,000
• D) $1,248,000
• E) None of the above

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