Justin's Plant Store, a Retailer, Started Operations on January 1

question 135

Multiple Choice

Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below: $\begin{array} { |l | r | } \hline & \text { Expected Sales } \\\hline \text { January } & \$ 10,000 \\\hline \text { February } & 24,000 \\\hline \text { March } & 16,000 \\\hline \text { April } & 25,000 \\\hline\end{array}$ The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost) . All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales, and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
-In a budgeted income statement for the month of February,what would be the net income?

• A) $0.
• B) $1,800.
• C) $4,200.
• D) $9,000.

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Definitions:

Rational Model

A decision-making approach based on careful analysis and logical evaluation of alternatives to achieve the most favorable outcome.

Decision Making

The cognitive process of selecting a course of action among multiple alternatives, often resulting in a final choice or judgment.

Bounded Rationality

A concept suggesting that decision-making is limited by the information available, cognitive limitations of minds, and finite time to make decisions.

Product Development

The entire process of bringing a new product or service to the market.