Rainbow Legacy Ltd Has the Following Balances at 31^st December

Rainbow Legacy Ltd has the following balances at 31^st December 2019: Cash $46,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December) ; merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only) . Budgeted sales follow:
$$\begin{array} { l l } \text { January } & \$ 100,000 \\\text { February } & \$ 180,000 \\\text { March } & \$ 120,000 \\\text { April } & \$ 200,000\end{array}$$ Other data:
-Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales
-Cost of goods sold is 40% of sales
-Ending inventory must be 150% of the next month's cost of sales
-Purchases are paid 70% in month of purchase and 30% in the following month
-The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for depreciation
-All costs are paid in the month incurred
-Minimum cash balance requirement is $6,000
What is the budgeted cost of purchases for February?

A) $108,000
B) $36,000
C) $72,000
D) $120,000

Correct Answer:

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