The following information pertains to question 3 to 9. The February operating bu
ID: 2569071 • Letter: T
Question
The following information pertains to question 3 to 9. The February operating budget for Big Ben Boats shows the following figures:
Budgeted sales for February $100 000 and for March $200 000.
Collections for sales are 70% in the month of sale and 30% the month after the sale.
Gross margin is 30% of sales.
Administrative costs are $10 000 each month.
Beginning accounts receivable is $20 000.
Beginning inventory is $14 000.
Beginning accounts payable is $60 000. (All from inventory purchases.)
Purchases are paid in full the month following the purchase.
Desired ending inventory is 20% of next month's cost of goods sold (COGS).
7) At the end of February, budgeted ending inventory is:
Select one:
a. $20 000
b. $28 000
c. $40 000
d. None of these answers is correct
Explanation / Answer
Computation March Cost of Goods Sold
March Cost of Goods Sold
=
March Sales - Gross Profiit of March Sales
=
$200,000- $200,000 x 30%
=
$200,000 x 70%
March Cost of Goods Sold
=
$ 140,000
February ending Inventory = March COGS x 20%
=$140,000 x 20%
=$28,000
Hence b Correct
Computation March Cost of Goods Sold
March Cost of Goods Sold
=
March Sales - Gross Profiit of March Sales
=
$200,000- $200,000 x 30%
=
$200,000 x 70%
March Cost of Goods Sold
=
$ 140,000
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