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Conner Company is a medium-sized toy distributor
Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of
the next month’s budgeted sales. Cost of goods sold is 50% of the selling price. Payment for
purchases is made in the month after purchase. All other costs are paid in the month incurred.
B
udgeted amounts are as follows:
March
April
May
June
July
August
Sales
$10,000
$20,000
$30,000
$30,000
$50,000
$40,000
Costs:
Wages
1,500
2,000
2,500
1,500
Rent
500
500
500
500
Other
400
500
600
500
Total cash disbursements in August are expected to be:
a) $24,000
b) $45,500
c) $21,500
d) $31,000
Expert Solution
Computation of the total cash disbursements in August:-
Cost of goods sold in July = $50,000 * 50%
= $25,000
Cost of goods sold in August = $40,000 * 50%
= $20,000
July purchases = Cost of goods sold + Ending stock - Beginning stock
= $25,000 + ($20,000 * 70%) - ($25,000 * 70%)
= $25,000 + $14,000 - $17,500
= $21,500
Total cash disbursements = July purchases + Wages + Rent + Others
= $21,500 + $1,500 + $500 + $500
= $24,000
Correct option is a) $24,000
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