Adi Manufacturing Corporation is estimating the following raw material purchases for the final four months of the year:

At Adi, 30% of raw materials purchases are normally paid for in the month of purchase. The remaining 70% is paid for in the month following the purchase.
-How much cash should Adi expect to pay out for raw material purchases during November?

Question

Adi Manufacturing Corporation is estimating the following raw material purchases for the final four months of the year:

At Adi, 30% of raw materials purchases are normally paid for in the month of purchase. The remaining 70% is paid for in the month following the purchase.
-How much cash should Adi expect to pay out for raw material purchases during November?

Quizplus · Accepted Answer

To find the cash paid for raw material purchases, we need to subtract the change in accounts payable from the cost of goods sold. The cost of goods sold is given as $4,960,000, and the change in accounts payable can be calculated as:

Beginning accounts payable = $840,000
+ Purchases on account = $5,120,000
- Ending accounts payable = $5,104,000
= Change in accounts payable = $56,000

Therefore, the cash paid for raw material purchases is:

Cost of goods sold - Change in accounts payable
= $4,960,000 - $56,000
= $4,904,000

Hence, Adi is expected to pay out $896,000 for raw material purchases during November.

Adi Manufacturing Corporation Is Estimating the Following Raw Material Purchases