During the first quarter of its operations, Morris Mfg. Co. expects to sell 50,000 units and create an ending inventory of 20,000 units. Variable manufacturing costs are budgeted at $10 per unit, and fixed manufacturing costs at $100,000 per quarter. The company's treasurer expects that 80 percent of the variable manufacturing costs will require cash payment during the quarter and that 20 percent will be financed through accounts payable and accrued liabilities. Only 50 percent of the fixed manufacturing costs are expected to require cash payments during the quarter. In the cash budget, payments for manufacturing costs during the quarter will total:

Question

Quizplus · Accepted Answer

The cash payments for manufacturing costs include 80% of variable costs and 50% of fixed costs. Variable costs for 70,000 units (50,000 sold + 20,000 ending inventory) are $700,000, so 80% of that is $560,000. Fixed costs are $100,000, so 50% of that is $50,000. Total cash payments are $560,000 + $50,000 = $610,000.

During the First Quarter of Its Operations, Morris Mfg