History Entertainment distributes a DVD that sells for $12 per unit. History pays $7 per unit to buy the product. Selling cost of $1 per unit is incurred to deliver the product to the customer. This is paid in cash when the product is sold. History has $50,000 per month in fixed selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in the next month. It is History's policy to maintain an inventory at the end of each month equal to 30% of the next month's projected cost of sales. History makes 30% of sales in cash, and the rest are on credit. Credit sales are collected in the month after sale. Budgeted monthly sales for the first five months of 2014 are as follows: $$\begin{array} { l l }
\text { January } & 20,000 \text { units } \
\text { February } & 22,000 \text { units } \
\text { March } & 26,000 \text { units } \
\text { April } & 28,000 \text { units } \
\text { May } & 40,000 \text { units }
\end{array}$$ How much is the budgeted cash payment for selling and administrative expenses in April?

Question

History Entertainment distributes a DVD that sells for $12 per unit. History pays $7 per unit to buy the product. Selling cost of $1 per unit is incurred to deliver the product to the customer. This is paid in cash when the product is sold. History has $50,000 per month in fixed selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in the next month. It is History's policy to maintain an inventory at the end of each month equal to 30% of the next month's projected cost of sales. History makes 30% of sales in cash, and the rest are on credit. Credit sales are collected in the month after sale. Budgeted monthly sales for the first five months of 2014 are as follows: $$\begin{array} { l l } 
\text { January } & 20,000 \text { units } \
\text { February } & 22,000 \text { units } \
\text { March } & 26,000 \text { units } \
\text { April } & 28,000 \text { units } \
\text { May } & 40,000 \text { units }
\end{array}$$ How much is the budgeted cash payment for selling and administrative expenses in April?

Quizplus · Accepted Answer

The budgeted cash payment for selling and administrative expenses in April includes half of April's expenses and half of March's expenses. April's total expenses are $50,000, so half is $25,000. March's total expenses are also $50,000, so half is $25,000. Therefore, the total cash payment in April is $25,000 + $25,000 = $50,000. However, we must add the $1 per unit selling cost for April's 28,000 units, which is $28,000. Thus, the total is $50,000 + $28,000 = $78,000.

History Entertainment Distributes a DVD That Sells for $12 Per