Nette Co.

has the following expected pattern of collections on credit sales: 70 percent collected in the
month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after
the month of sale. The remaining 1 percent is never collected. At the end of July, Nette Co. has the
following accounts receivable balances:

From June sales $21,000

From July sales 48,000

Ebony's expected sales for August are $150,000. What were total sales for June?
a. $140,000
b. $72,414
c. $70,000
d. $150,000
ANS: a
Balance in A/R from April sales: $21,000/0.15 = $140,000
15% represents the amount of June receivables uncollected at the end of July.

Budgeted sales for the first six months for Potter. are listed below:

JANUARY FEBRUARY MARCH APRIL MAY JUNE

UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Porter Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next
month's budgeted sales. If Potter Corp. plans to produce 6,000 units in June, what are budgeted sales for
July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units
ANS: C
Beginning Inventory for June 1,600 units (4,000 * 40%)
Produced in June 6,000 units
Deduct: June sales (4,000) units
Ending inventory for June 3,600 units

3,600/0.40 = 9,000 units

Square Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the following
month's sales. For the forthcoming month of March,Square has budgeted the beginning inventory at
30,000 units and the ending inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.
ANS: B
Increase in inventory = 3,000 units
 3,000/0.30 = 10,000 increase for April over March.

Scarlet Company manufactures card tables. The company has a policy of maintaining a finished goods inventory
equal to 40 percent of the next month's planned sales. Each card table requires 3 hours of labor. The
budgeted labor rate for the coming year is $13 per hour. Planned sales for the months of April, May, and
June are respectively 4,000; 5,000; and 3,000 units. What is Scarlet Company’s budgeted direct labor cost
for May?
a. $54,600
b. $163,800
c. $226,200
d. $179,400
ANS: D
Ending Inventory, May 1,200 units
Sales: May 5,000 units
Requirements for May 6,200 units
Less: Beginning Inventory, May 1,600 units
Units to be produced 4,600 units
3 hrs/unit * $13/hr
$179,400

For the month of October, M Corp. predicts total cash collections to be $1 million. Also for October, M Corp.
estimates that its beginning cash balance will be $50,000 and that it will borrow cash in the amount of
$70,000. If M Corp. estimates an ending cash balance of $30,000 for October, what must its projected
cash disbursements be?
a. $1,090,000
b. $1,120,000
c. $1,070,000
d. $1,020,000
ANS: A
Beginning Cash Balance $ 50,000
Cash Collections 1,000,000
Borrowings 70,000
Cash Available 1,120,000
Less: Ending Cash Balance 30,000
Projected Cash Disbursements $1,090,000