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KAB: Calculate expected cash collections & disbursements

KAB, Inc. a small retail store, had the following results in May. The budgets for June and July are also given:

May June July
(Actual) (Budgeted) (Budgeted)

Sales: $42,000 $40,000 $45,000
Less: COGS <21,000> <20,000> <22,500>
Gross Margin 21,000 20,000 22,500
Less S&A Exp. <20,000> <20,000> <20,000>
Net Op Inc. $1,000 $0 $2500

Sales are collected 80% in the MONTH OF SALE and 20% in the MONTH FOLLOWING THE SALE. There are no bad debts. The goods that are sold are purchased in the month PRIOR TO SALE. Suppliers of the goods are paid in the month FOLLOWING SALE. The S&A expenses are paid in the MONTH OF THE SALE.

The amount of cash collected during the month of June should be:

a) 32,000
b) 40,000
c) 40,400
d) 41,000
e) 45,000

The cash disbursements during the month of June for goods purchased for resale AND for S&A should be:

a) 40,000
b) 41,000
c) 42,500
d) 43,500
e) none of the above

Solution Summary

The solution calculate expected cash collections and disbursements for June for KAB Inc.