Neal Merchandising Company expects to purchase $90,000 of materials in July and $105,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be?

Question

Quizplus · Accepted Answer

For July's materials, $90,000 x 0.75 = $67,500 will be paid in July and $90,000 x 0.25 = $22,500 will be paid in August.

For August's materials, $105,000 x 0.75 = $78,750 will be paid in August and $105,000 x 0.25 = $26,250 will be paid in September.

Therefore, August's cash disbursements for materials purchases will be $67,500 + $78,750 = $146,250, but since $22,500 of that amount belongs to July's purchases, we subtract it to get the final answer: $146,250 - $22,500 = $123,750, which is closest to choice C, $101,250.

Neal Merchandising Company Expects to Purchase $90,000 of Materials in July