CHAPTER 6 QUIZ

1.

Dewitt Co. budgeted its activity for October 2004 from the following information:

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Sales are budgeted at \$750,000. All sales are credit sales and a provision for doubtful

accounts is made monthly at the rate of 2 percent of sales.

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Merchandise inventory was \$120,000 at September 30, 2004, and an increase of \$10,000

is planned for the month.

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All merchandise is marked up to sell at invoice cost plus 50 percent.(what is this sentence mean)

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Estimated cash disbursements for selling and administrative expenses for the month are

\$105,000.

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Depreciation for the month is projected at \$25,000.

Dewitt is projecting operating income for October 2004 in the amount of

a.

\$105,000.

b.

\$119,000.

c.

\$129,000.

d.

\$230,000.

Here is the original Solution( I am not sure if the answer is 100% right or not)

Sales

\$750.000

Cost of goods sold

(500,000) (750,000/Cost +.5 Cost) ——(I need a explanation about how you get this. What is the cost in this equation? )

(15,000)

S & A expense

(105,000)

Depreciation expense

(25,000)

Operating income

105,000

and is this question correct?