The Adams Company, a merchandising firm, has budgeted its activity for November
ID: 2385025 • Letter: T
Question
The Adams Company, a merchandising firm, has budgeted its activity for November according to the following information:• Sales at $450,000, all for cash
• Merchandise inventory on October 31 was $200,000.
• The cash balance November 1 was $18,000.
• Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash.
• Budgeted depreciation for November is $25,000.
• The planned merchandise inventory on November 30 is $230,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.
The budgeted cash receipts for November are:
A. $315,000
B. $450,000
C. $135,000
D. $475,000
Explanation / Answer
Required merchandise peurchases for November is calculated as: Budgeted Cost of goods sold = 70% ($450,000) = $315,000 Required merchandise purchases for November are calculated as: Budgeted Cost of goods sold $315,000 Add: Desired ending merchandise inventory $230,000 ----------------------------------------------------------------- Total $545,000 Less: Beginning merchandise inventory $200,000 ----------------------------------------------------------------- Required merchandise purchases for November $345,000 ----------------------------------------------------------------- Since Cost of goods sold is already given, we no need to calculate the value of purchases as purchases is part of Cost of goods sold. But to kow the value of purchases and to verify the amount of cost of goods sold, we calculated the value of purchases. Budgeted net income is calculated as: Sales $450,000 (-) Cost of goods sold $315,000 ------------------------------------------------- Gross profit $135,000 (-) Selling and administrative expenses $60,000 Depreciation $25,000 ------------------------------------------------- Budgeted Net income $50,000 ------------------------------------------------- Therefore, the Budgeted net income for November is $50,000. The correct option is c) $50,000
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