Question

A company has budgeted direct materials purchases of $370000 in July and $530000 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 $160000
Purchase of office equipment 73000
Selling and Administrative Expenses 50000
Depreciation Expense 37000
The budgeted cash disbursements for August are:_________.
a. $802000.
b. $765000.
c. $715000.
d. $482000.

Answer 1

Answer:

b. $765000

Explanation:

Depreciation is a non-cash item and as such will not be considered in the computation of the amount to be disbursed in the month.

Given that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month for direct materials, it means the company will pay 70% of the material purchase in August and 30% of July's purchase in August.

Hence, The budgeted cash disbursements for August are

= 70% * $530,000 + 30% * $370,000 + $160000 + $73,000 + $50,000

= $765,000

Answer 2

Answer:

The budgeted cash disbursements for August are $765000

Explanation:

Cash disbursements refer to the outflow of cash from the business. This will include all the transactions that involve payment or outflow of cash from the business for any purpose.

The cash disbursements for the month of August are:

The company will pay its creditors for Purchases in accordance to its policy. Following it, the cash disbursement for payment to creditors in August will be,

Payment for July purchases = 370000 * 0.3  = $111000

Payment for August purchases = 530000 * 0.7  =  $371000

Total payment to suppliers in August = 111000 + 371000 = $482000

Total cash disbursements for August:

To accounts payable                     $482000

For wages expense                       $160000

Purchase of office equipment       $73000

Selling and Admin expenses        $50000  

Total Cash Disbursements            $765000

The depreciation is a non cash expense so not included for calculating cash disbursements