Question

June, and July. At April 30, the company had cash of $10,000, accounts receivable of $455,000, inventories of $464,250, and accounts payable of $151,055. The budget is to be based on the following assumptions:

SALES:
Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

Answer 1

The student's question focuses on budgeting based on sales and collections. The accounting profit is found by subtracting explicit costs from revenues, resulting in $50,000 based on given figures. Errors like overpayments in bills must be quickly addressed, as illustrated by the anecdotal case of Noel.

Step-by-step explanation:

The student's question pertains to creating a budget based on sales collections and billings for a company. To calculate the firm's accounting profit, one would deduct explicit costs from total revenues. Using the information provided where a firm's sales revenue is $1 million, and the costs for labor, capital, and materials are $600,000, $150,000, and $200,000 respectively, the accounting profit would be $50,000.

The economic profit factors in implicit costs and is calculated by further reducing the accounting profit by these costs. If the implicit cost was $30,000, then the economic profit would be $20,000. Additionally, it's crucial to monitor and address any errors in billing, as highlighted by the example of Noel catching a $250,000 overpayment error.