Question

Sophia, inc. is preparing its cash budget for the fourth quarter. the inventory manager advises that materials purchases will be $40,000 in october and will increase by 25% for each month thereafter due to the holiday season. sophia's purchases in september were $32,000. sophia pays for purchases 50% in the month after sale and 50% in the 2nd month after the sale. what are sophia's budgeted cash payments for purchases in november?

Answer 1

Sophia's purchases are increasing each month by 25%. In September, the purchases were $32000. In October, the purchases will be $40,000. In November, the purchases will be $50,000 which is 25% more than the October purchases of $40,000. Sophia pays 50% for the November purchases in December (the month after) and 50% in January (2 month after sale), so she will pay $25,000 in December and $25,000 in January for purchases in November.