[ppierce]

I really wish Becker would put out the explanations already.

Anyone care to explain how B is the answer?

Johnson

Co., distributor of candles, has reported the following budget assumptions for year 1: No change

in candles inventory level; cash disbursement to candle manufacturer, $300,000; target accounts payable

ending balance for year 1 is 150% of accounts payable beginning balance; and sales price is set at a

markup of 20% of candle purchase price. The candle manufacturer is Johnson’s only vendor, and all

purchases are made on credit. The accounts payable has a balance of $100,000 at the beginning of year

1. What is the budgeted gross margin for year 1?

a. $60,000

b. $70,000

c. $75,000

d. $87,500

FAR 80
REG 76
AUD 85
BEC 85
Ethics 98
DONE!!!!!!!!!!!!!!!!!!!!

[sbarkerACPA]

This question requires you to figure out the amount purchased on credit and revenue generated. You can “back into” the purchase amount. It tells you the beginning AP balance is 100K and require a balance of 150K (100K*1.5) and a payment was made on the account for 300K. Using that information you can conclude that the purchase made on account was 350K, which also be the COGS. Now figure the Revenue of 420K (350*1.2). Revenue less COGS is gross margin, 70k (420K-350K)

BEC: 74;81
AUD: 77
REG: 71; 80
FAR: 78
License for CPA----APPROVED
CPA Class of 2013

[r]

how do you get 420K? please

R@twal

[Anonymous]

Sales price is a markup of 20% purchase price.
Purchase on account was calculated to be 350k,
so 350k * 1.2 = 420k

or 350k * .2 = 70k (thats the 20% mark up)
purchase price + mark up = sales
350k + 70k = 420k

[Author]

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