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

question 38

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.
(Appendix 10A) What are the anticipated cash disbursements for October?

• A) $120,000
• B) $180,000
• C) $140,000
• D) $60,000

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Definitions:

Incremental Manufacturing Cost

The additional cost incurred to produce one additional unit of product, including materials, labor, and overhead costs.

Production Increase

An upward adjustment or rise in the amount of goods and services produced by a company.

Prime Cost

The sum of direct materials and direct labor costs in a manufacturing process, not including overhead expenses.

Incremental Manufacturing Cost

The additional cost incurred to produce an additional unit of product, including direct materials, direct labor, and variable overhead.