Reference no: EM132971681

Arcor, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales.

Expected sales for the first four months appear below:

Expected Sales

January $10,000

February 20,000

March 15,000

April 25,000

The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales, and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.

Problem 1: In a budget of cash disbursements for March, what would be the total cash disbursements?

Option 1: $11,200.

Option 2: $13,900.

Option 3: $16,900.

Option 4: $13,500.