Question

Funnel Manufacturing Company has provided the follwoing information:

Month	Budgeted Sales
January	$ 76,000
February	85,000
March	92,000
April	79,000

Budgeted Selling and Administrative Expenses Per Month are as follows:

Wages, $15,000

Advertising, $12,000

Depreciation, $3,000

Other, 4 percent of Sales

Cost of Goods Sold is 60% of Sales. All inventory is purchased in the month it is sold. Inventory purchases are paid 2/3 in the month of purchase, the remaining 1/3 paid in the following month.  

The budgeted net income for February would be:

	a.	$600
	b.	$7,000
	c.	$5,300
	d.	$3,600

How much cash will be paid for purchases during the month of February?

	a.	$49,200
	b.	$45,600
	c.	$96,600
	d.	$51,000

What amount of Accounts Payable would be reported on the Balance Sheet at the end of February?

	a.	$28,333
	b.	$34,000
	c.	$17,000
	d.	$54,000

Answer 1

1)
	The budgeted net income for February would be:
	a.$600
	Working:
					February
	# 1	Budgeted Sales			$       85,000
		Cost of goods sold			51,000
		Gross Profit			34,000
		Selling and Administrative Expenss:
		Wages		15,000
		Advertising		12,000
		Depreciation		3,000
		Other		3,400	33,400
		Net Income			600
	# 2	Other Expense		=	Budgeted Sales *4%
				=	$       85,000	*4%
				=	$         3,400
2)
	Cash will be paid for purchases during the month of February:
	a.	$49,200
	Working:
						January	February
		Budgeted Sales				76,000	85,000
		Cost of goods sold				45,600	51,000
							February
	Purchase of last month			45,600	x 1/3		15,200
	Purchase of current month			51,000	x 2/3		34,000
	Cash will paid for the purchase						49,200
3)
	c.$17,000
	Working:
							February
	Purchase of current month payable at the end of Month
				51,000	x 1/3		17,000