Refer to 3-37.

Required:

Prepare a projected income statement for Well Feed for February. How do you explain the differences between the income statement and the cash budget?

Question 3-37

Well Feed Company sells pet food in 10-kilogram bags for $12.40 per bag. Sales estimates for the first three months of the year are as follows:

December sales were 16 000 bags of pet food. Well Feed’s desired ending inventory of pet food each month is 25 per cent of the next month’s sales estimate (in bags). All sales are cash sales. Well Feed purchases bags of pet food at $9.40 per bag and pays for them the month after the purchase. General and administrative expenses total $18 000 per month (including $10 000 depreciation), and Well Feed pays for these expenses (except for depreciation) in the same month they are incurred. January’s current liabilities (all to be paid in January) total $35 500. The business’s cash balance on 1 January is $38 000.

Transcribed Image Text:

Bags January 20 000 February 17 000 March 15 000