Lough Company prepared the following purchases budget: All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase.
What are the total cash disbursements in August for the purchase of merchandise?

Question

Lough Company prepared the following purchases budget:  All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase.
What are the total cash disbursements in August for the purchase of merchandise?

Quizplus · Accepted Answer

To calculate the cash disbursement in August, we need to see the amount of purchases that will be paid in August. According to the purchases budget, 55% of the purchases made in July will be paid in August. Therefore, the cash disbursement in August will be:

(55% of $60,000) + (25% of $40,000) = $33,000 + $8,550 = $41,550.

Therefore, option A is the correct answer.

Lough Company Prepared the Following Purchases Budget: All Purchases