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 2017 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 2017 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 is $75,000. This is calculated by adding the current month's cash payment, which is half of the current month's fixed expenses ($50,000 * 50% = $25,000), to the previous month's deferred payment, which is the other half of the previous month's fixed expenses ($50,000 * 50% = $25,000), plus the depreciation expense that does not require a cash outflow ($3,000). Therefore, the total cash payment is $25,000 (current month) + $25,000 (previous month) + $25,000 (depreciation not paid in cash) = $75,000.

History Entertainment Distributes a DVD That Sells for $12 Per