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

ID: 2569075 • Letter: H

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).

9) In order to minimize the length of the Cash cycle, Big Ben Boats should:

Select one:

a. Both 'Pay Accounts payable as soon as possible' and 'Ensure that payments from Accounts Receivable are collected as late as possible' are correct

b. Pay Accounts payable as late as possible

c. Pay Accounts payable as soon as possible

d. Ensure that payments from Accounts Receivable are collected as late as possible

Answer is B. Pay Accounts payable as late as possible

Explanation is as follows: Cash cycle = Average collections days-Average payment period

Therefore, Cash cycle will be minimized by reducing the average collection period and by increasing the average payment period.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.