Question

Question 3

Information pertaining to Yekstop Corp.'s sales revenue is presented below:

	November				December				January
Cash sales	$	105,000			$	134,000			$	87,000
Credit sales		297,000				459,000				243,000
Total sales	$	402,000			$	593,000			$	330,000

Management estimates that 3% of credit sales are eventually uncollectible. Of the collectible credit sales, 60% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 20% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 50% of the selling prices.

Total budgeted inventory purchases in November by Yekstop Corp. are:

Multiple Choice

• $222,375.

• $272,625.

• $402,000.

• $423,375.

• $535,782.

Information pertaining to Yekstop Corp.'s sales revenue is presented below:

	November				December				January
Cash sales	$	104,000			$	133,000			$	86,000
Credit sales		296,000				458,000				242,000
Total sales	$	400,000			$	591,000			$	328,000

Management estimates that 5% of credit sales are eventually uncollectible. Of the collectible credit sales, 60% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 70% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 50% of the selling prices.

Budgeted January cash payments for December inventory purchases by Yekstop Corp. are:

Multiple Choice

• $61,035.

• $88,650.

• $142,415.

• $206,850.

• $274,040.

Answer 1

Solution-1
Closing stock policy	75% of next month sale
Closing stock of previous month becomes the opening stock of the current month
So opening stock will be 75% of current month sale
Calculation of total purchase in November
Total Sale in November	$   402,000
Opening stock-402000*75%	$   301,500
Total Sale in December	$   593,000
Closing stock-593000*75%	$   444,750
Calculation of total purchase in November
Closing stock	$   444,750
Add: Sale during the year	$   402,000
Less: Opening stock	$ (301,500)
Total Purchase during the year at sale price	$   545,250
Total Purchase during the year at a cost	$   272,625
So option 2 is correct.
Solution-2
Closing stock policy	70% of next month sale
Closing stock of previous month becomes the opening stock of the current month
So opening stock will be 70% of current month sale
Calculation of total purchase in November
Total Sale in December	$   591,000
Opening stock-591000*70%	$   413,700
Total Sale in January	$   328,000
Closing stock-328000*70%	$   229,600
Calculation of total purchase in December
Closing stock	$   229,600
Add: Sale during the year	$   591,000
Less: Opening stock	$ (413,700)
Total Purchase during the year at sale price	$   406,900
Total Purchase during the year at cost	$   203,450
December month payment in January-70%	$   142,415
So option 3 is correct.