Trina Makes Handmade Leis in Hawaii Which She Sells to Local

question 34

Multiple Choice

Trina makes handmade leis in Hawaii which she sells to local tourists.She anticipates August to be a busy month with the sale of 500 leis.She has prepared the following static budget for August:
$\begin{array}{lr} \text {Sales revenue (500 units) } &\$5000\\ \text { Variable costs:} &\\ \text { Direct materials } &1000\\ \text { Direct labour} &1000\\ \text { Overhead } &375\\ \text { Fixed costs} &\underline{200}\\ \text { Net income}&\underline{\$2425}\end{array}$

During August,Trina actually produced and sold 400 leis.What should be Trina's net income in August based on a flexible budget?

• A) $1940
• B) $1825
• C) $1425
• D) $1900

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Definitions:

Average Collection Period

The average number of days it takes for a business to receive payments owed by its customers, indicating the efficiency of the company’s credit and collection policies.

Current Ratio

A measure of a business's capability to meet its obligations due in less than one year, focusing on its short-term financial health.

Company

A legal entity formed by individuals, stockholders, or shareholders, with the purpose of operating for profit.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available to fund day-to-day operations.