Question

LPD​ Logistics, Inc.'s projected sales for the first six months of 2010 are given below. Jan. ​$300,000 April ​$350,000 Feb. ​$350,000 May ​$500,000 Mar. ​$475,000 June ​$400,000 ​20% of sales are collected in the month of the​ sale, 75% are collected in the month following the​ sale, and​ 5% are written off as uncollectible. Cost of goods sold is​ 80% of sales. Purchases are made the month prior to the sales and are paid during the month the purchases are made​ (i.e. goods sold in March are bought and paid for in​ February). Total other cash expenses are​ $35,000/month. The​ company's cash balance as of February​ 1, 2010 will be​ $30,000. Excess cash will be used to retire shortminusterm borrowing​ (if any). LPD has no short term borrowing as of February​ 28, 2010. Assume that the interest rate on shortminusterm borrowing is​ 1% per month. The company must have a minimum cash balance of​ $20,000 at the beginning of each month. What is​ LPD's projected gross profit for​ April? A. ​($50,000) B. ​$70,000 C. ​$100,000 D. ​$110,550

Answer 1

Answer:

LPD's projected gross profit for​ April is $70.000 (B)

Explanation:

We can define Gross Profit as follows:

Sales -  Cost of goods sold

In our case, we need to find the gross profit for April:

Projected Sales: $350.000

Cost of goods:   -$280.000 ($350.000 * 80%)

Gross Profit:        $  70.000

The other information can help us to define cash management, because they are related with payments, for example: sales collected, cost payments or cash balance.