Problem:
KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.
May June July
(actual) (budget) (budget)
Sales $42,000 $40,000 $45,000
Cost of sales 21,000 20,000 22,500
Gross margin 21,000 20,000 22,500
Operating expenses 20,000 20,000 20,000
Operating income $ 1,000 $ 0 $ 2,500
Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "operating expenses" are paid in the month of the sale.
The cash disbursements during the month of June for goods purchased for resale and for operating expenses should be:
A) $40,000. C) $42,500.
B) $41,000. D) $43,500.