Mi Casa Corporation Wishes to Prepare a Cash Budget for November

question 107

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 November sales are expected to be

• A) $31,360.
• B) $32,000.
• C) $41,600.
• D) $39,200.

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Definitions:

Opportunity Costs

The cost of an alternative that must be forgone to pursue a certain action, representing the benefits that could have been received by taking an alternative action.

Economic Costs

The total cost of choosing one action over another, including both explicit costs (direct payment) and implicit costs (opportunity costs).

Accounting Costs

Accounting costs, also known as explicit costs, refer to actual expenditures incurred by a business.

Accountant's Fees

These are charges for services provided by an accountant, such as bookkeeping, financial analysis, and preparation of financial statements and tax returns.