A company has budgeted direct materials purchases of $200,000 in March and $320,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During April, the following items were budgeted: The budgeted cash disbursements for April are
A) $432,000.
B) $284,000.
C) $464,000.
D) $488,000.

Question

A company has budgeted direct materials purchases of $200,000 in March and $320,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During April, the following items were budgeted:  The budgeted cash disbursements for April are
A) $432,000. 
B) $284,000. 
C) $464,000. 
D) $488,000.

Quizplus · Accepted Answer

To determine the budgeted cash disbursements for April, we need to calculate the total amount of purchases made in both months and then determine how much of these purchases were paid for in each month.

Total purchases = $200,000 (March) + $320,000 (April) = $520,000

70% of March purchases are paid in March = 0.7 x $200,000 = $140,000

30% of March purchases are paid in April = 0.3 x $200,000 = $60,000

70% of April purchases are paid in April = 0.7 x $320,000 = $224,000

30% of April purchases are paid in May = 0.3 x $320,000 = $96,000

Therefore, the budgeted cash disbursements for April are:

$140,000 (purchases paid in March) + $224,000 (purchases paid in April) = $364,000

Plus, $60,000 (30% of March purchases paid in April) = $424,000

Therefore, the correct answer is C) $464,000.

A Company Has Budgeted Direct Materials Purchases of $200,000 in March