Use the Following Information for the Next 5 Questions

question 130

Multiple Choice

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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:

Fixed Manufacturing Overhead

The total of all production costs that do not change with the level of output, including salaries, rent, and insurance.

Depreciation

The allocation of the cost of an asset over its useful life, reflecting the loss in value over time.

Master Budget

An inclusive financial planning document that combines all of a company's individual budgets and plans for a specific period.

Credit Sales

Sales made by a business where payment is delayed as per agreed terms between the seller and the buyer.