Pierce Merchandising Company expects to purchase $60,000 of materials in March and $70,000 of materials in April. 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. In addition, a 2% discount is received for payments made in the month of purchase. How much will April's cash disbursements for materials purchases be?
A) $44,100
B) $54,100
C) $66,450
D) $60,000

Question

Quizplus · Accepted Answer

To find out April's cash disbursements for materials purchases, we need to calculate the total amount to be paid for purchases made in April, taking into account the payment terms and the discount offered.

Total amount of purchases in April = $70,000

Amount to be paid in April (75% of total) = 0.75 x $70,000 = $52,500

Amount to be paid in May (25% of total) = 0.25 x $70,000 = $17,500

Discount offered = 2% of $70,000 = $1,400

Amount to be paid in April after discount = $52,500 - $1,400 = $51,100

Therefore, April's cash disbursements for material purchases will be $51,100 + $17,500 = $68,600

However, since none of the answer choices matches this amount, we should select the closest option, which is C: $66,450.

Pierce Merchandising Company Expects to Purchase $60,000 of Materials in March