Mi Casa Corporation Wishes to Prepare a Cash Budget for November

question 71

Multiple Choice

Mi Casa Corporation wishes to prepare a cash budget for November 2010. Sales, purchases, and expenses for October (actual) and November and December (estimated) are as follows: $\begin{array}{lcrr} & \text { Sales } & \text { Purchases } & \text { Expenses } \\\text { October } & \$ 48,000 & \$ 35,000 & \$ 14,000 \\\text { November } & 40,000 & 30,000 & 11,000 \\\text { December } & 45,000 & 22,000 & 9,500 \\\end{array}$ Sales: All sales are on credit, and the company's experience shows that, on the average, 80 percent of sales are collected in the month of sale and the balance in the following month. A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the following month. The company is allowed an average discount of 1 percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000 and $100 of prepaid expenses, which will expire. All other expenses are paid as incurred.
Other: On September 1, 2010, a new machine was purchased for $5,000. A down payment of $500 was made, and it was agreed that the balance would be paid in equal installments in the following three months.
The cash receipts in November for October sales are expected to be

• A) $8,000.
• B) $9,600.
• C) $9,408.
• D) $7,840.

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