Johnson Co., distributor of candles, has reported the following budget assumptions for year 1: No change...
Johnson Co., distributor of candles, has reported the following budget assumptions for year 1: No change in candles inventory level; cash disbursement to candle manufacturer, $300,000; target accounts payable ending balance for year 1 is 150% of accounts payable beginning balance; and sales price is set at a markup of 20% of candle purchase price. The candle manufacturer is Johnson's only vendor, and all purchases are made on credit. The accounts payable has a balance of $100,000 at the beginning of year 1. What is the budgeted gross margin for year 1?
|
a. |
$70,000 |
|
|
b. |
$87,500 |
|
|
c. |
$60,000 |
|
|
d. |
$75,000 |
Homework Answers
The correct answer is Option A $70,000
Calculation is as below
| Purchase =Ending balance(150%of beginning balance) - beginning Balance +Cash disbursement |
| = 150,0000 -100,000 +300,000 |
| = 350,000 |
|
Compute sales price (sales price is a markup of 20% of purchase
price) Sales= $350,000 + ($350,000 × 20%) = $420,000 Budgeted Gross Margin (Sales − cost of goods sold)= $420,000 − $350,000 = $70,000 |
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