Question

Cove Enterprises operates a wholesaling business. All inventory sales and purchases are on account. Cove's budgeted monthly sales are as follows: Month May June July Budgeted sales $340,000 $320,000 $310,000 Collections are 80% in the month of the sale and 20% in the month following the sale. Cost of goods sold is budgeted at 75% of sales, and the desired safety stock of inventory is 60% of the next month's cost of goods sold. Cove pays all its accounts payable in the month following the purchase. Selling and administrative expenses paid in cash are $24,000 per month. Monthly depreciation on plant and equipment is $15,000. What is the budgeted net cash inflow for the month of June? $54,000 $51,000 $28,200 $68,200 None of the above

Answer 1

Solution: $54,000

Working:

Budgeted cost of goods sold	255,000
(75% * 340,000)
Add: Desired ending merchandise inventory	144,000
(75% * 320,000 * 60%)
Less: Beginning merchandise inventory	-153,000
(60%*255,000)
Required merchandise purchases in May	246,000
Collections (80% * 320,000)	256,000
Add: Credit sales (20% * 340,000)	68000
Less: Selling and administrative expenses	-24000
Less: Payment to accounts payable for m/o May	-246,000
Budgeted net cash flow m/o June	54,000