Question

Plato Industries' projected sales for the first six months of 2012 are given below:

Jan. 250,000 feb. 340,000 mar. 280,000 april 300,000 may 350,000 june 380,000

20% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 30% are collected in the second month following the sale. Cost of goods sold is 85% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $70,000/month. The company's cash balance as of February 28, 2012 will be $10,000. Excess cash will be used to retire short-term borrowing (if any). Plato has no short term borrowing as of February 28, 2012. Ignore any interest on short-term borrowing. The company must have a minimum cash balance of $40,000 at the beginning of each month. Plato's projected cumulative short-term borrowing as of April 30, 2012? $50,000 $25,000 $33,000 $60,000

Answer 1

Payment to creditors: Products sold for the month of April is being purchased in the month of march and payment is made in april, so the payment in april = Sales of april x 85% (ie, cost of goods sold is given as 85% of sales)