he following information pertains to question 3 to 9. The February operating bud

Question

he 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).

8) Assume (only for this question) that, in February one of Big Ben Boats’ biggest clients goes bankrupt, and will therefore not be able to pay Big Ben Boats for the goods that they bought in February.  The effect on Big Ben Boats’ Cash budget for February and March are:

Select one:

a. The amount of cash collected will decrease

b. No effect

c. The amount of cash collected will increase

d. The effect on cash collected cannot be determined

Explanation / Answer

The amount of cash collected will decrease if one of Big Ben Boats’ biggest clients goes bankrupt Option A is correct

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