Hinrich Entertainment distributes a DVD which sell for $12 per unit. Hinrich pays $7 per unit to buy the product. Selling costs of $1 per unit is incurred to deliver the product to the customer. This is paid in cash when the product is sold. Additionally, Hinrich has $50,000 per month in fixed and selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in next month. It is Hinrich policy to maintain an inventory at the end of each month equal to 20% of the next months projected cost of sales. Hinrich makes 30% of sales in cash, and rest are on credit. Credit sales are collected in the month after the sale. Budgeted monthly sales in units and dollars for the first three months of 2008 are as follows:
January = 20,000 units
February= 22,000 units
March= 26,000 units
Answer the following questions:
1. What amount of purchases of inventory (at cost) will be required in February?
2. What will total collections be in February?
3. What will Accounts Receivable be at the end of February?
4. What will the cash payment for selling and administrative expenses be in February including fixed and variable cash expenses?
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