Question

COVID 19 Co. has forecast purchases on account to be $318,000 in March, $371,000 in April, $421,000 in May, and $496,000o in June. Sixty percent of purchases are paid for in the month of purchase, the remaining 40% are paid in the following month. What are budgeted cash payments for April? Select one: a. $382,800 b. $349,800 C $256,800 d. $123,800

Answer 1

We are required to calculate the budgeted cash payment for the April month. It is given in the question that 60 % of purchases are paid on in the month of purchase itself whereas balance 40 % is paid in the following month.

So the budgeted payments for the month of April will include the 40 % of purchases made in March month and 60 % of purchases made in the April month respectively.

March month purchases = $ 318,000

40 % of March month = $ 127,200

April month purchases. = $ 371,000

60 % of April month. = $ 222,600

Total payments in April = 127,200 + 222,600

Total payments in April = $ 349,800.

Hence, option B is the correct answer.

SUMMARY:

We need to find out the budgeted cash payment in the month of April month. Purchases made on March is $ 318,000. Out of this 60 % is paid in March and 40 % is paid on April month. Purchases made on April is $ 371,000. Out of this 60 % is paid on April and 40 % is paid on May month. So the budgeted cash payment in April month will include the 40 % of purchases made in March and 60 % of purchases made on April month. We calculated the budgeted cash payment for April month amounting to $ 349,800.

Hence, option B is the correct answer.