Allen, Inc. has the following disbursements: * Variable manufacturing costs are $3 per unit. They are paid 40% in the month of purchase and 60% in the following month. Purchases are made in the month of production.
* Fixed overhead is $2,000, including $500 depreciation. Overhead costs are paid as incurred.
* Selling costs are $1,500 per month plus $1 per unit sold and are paid in the month incurred.
* Production for January, February, and March was 3,000, 2,000, and 1,200 units, respectively.
* Sales for the 3 months were 1,000, 2,500, and 1,000 units, respectively.
What is the amount of cash disbursements for February?
A) $13,300
B) $12,300
C) $12,800
D) $ 7,400

Question

Quizplus · Accepted Answer

Variable manufacturing costs for February production (2,000 units) = 2,000 * $3 = $6,00040% of this is paid in February = $6,000 * 40% = $2,400Fixed overhead for February = $2,000Selling costs for February = $1,500 + (2,500 units * $1) = $4,000Total cash disbursements for February = $2,400 + $2,000 + $4,000 = $8,400Variable manufacturing costs for January production (3,000 units) = 3,000 * $3 = $9,00060% of this is paid in February = $9,000 * 60% = $5,400Total cash disbursements for February = $8,400 + $5,400 = $13,800