A company has budgeted direct materials purchases of $250000 in July and $420000 in August. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During August, the following items were budgeted: Wages Expense $60000 Purchase of office equipment 64000 Selling and Administrative Expenses 39000 Depreciation Expense 27000 The budgeted cash disbursements for August are

Question

Gilbert

Business

12 April, 22:53

A company has budgeted direct materials purchases of $250000 in July and $420000 in August. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During August, the following items were budgeted: Wages Expense $60000 Purchase of office equipment 64000 Selling and Administrative Expenses 39000 Depreciation Expense 27000 The budgeted cash disbursements for August are

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Spencer Castaneda · Answer 1

The budgeted cash disbursements for August are $532,000

Explanation:

Amount of cash the company pays for purchases in August:

30% x Materials purchases in July + 70% x Materials purchases in August = 30% x $250,000 + 70% x $420,000 = $369,000

The budgeted cash disbursements for August = Cash paid for purchasing materials + Wages Expense + Purchase of office equipment + Selling and Administrative Expenses = $369,000 + $60,000 + $64,000 + $39,000 = $532,000

Noted: Depreciation is a non-cash accounting expense, so it doesn't involve cash flow