Question

It is January 1 of Year 2. Purchases for Yosef Company for January, February, and March are forecasted to be as follows: January, $200,000; February $400,000; March, $500,000. 20% of purchases are for cash. Of the credit purchases, 30% are paid during the month of the purchase, 50% in the month following the purchase, and 20% in the second month following the purchases. TOTAL purchases for November and December of Year 1 were $200,000 and $400,000, respectively. What is the forecasted amount of total CASH PAYMENTS FOR PURCHASES in March?

Answer 1

Answer:

$412,000

Explanation:

1. Cash Purchases:

The total purchases in the month of March is of $500,000.

It is given that 20% of Purchases are for cash.

Hence, 20% of $500,000 would be;

$500,000 x 0.20

$100,000

2. Credit Purchases:

(i) Month of Purchase:

The remaining amount for the month of purchase to be paid is 30% of the remaining amount after Cash Purchases during March. Hence, for March remaining payment is;

$500,000 - $100,000

$400,000

Hence 30% of $400,000 would be;

$400,000 x 0.30

$120,000

(ii) Following Month:

The following month payment to be included for month of March Cash Payment would be for the previous month which is February and will be calculated as follows;

20% of $400,000

$80,000

Following Month cash payment for the month of February, to be included in the month of March Cash Payment, will be calculated as follows;

$400,000 - $80,000

$320,000

Hence, 50% of $320,000 would be;

$320,000 x 0.50

$160,000

(iii) Second Month:

The Second month payment to be included for month of March Cash Payment would be for the month of January will be calculated as follows;

20% of $200,000

$40,000

Second Month cash payment for the month of January, to be included in the month of March Cash Payment, will be calculated as follows;

$200,000 - $40,000

$160,000

Hence 20% of $160,000 would be;

$32,000

(3) CASH PAYMENT for PURCHASES in MARCH:

Cash Purchases = $100,000

Credit Purchases = Month of Purchase + Following Month + Second Month

Credit Purchases = $120,000 + $160,000 + $32,000

Credit Purchases = $312,000

Hence;

Cash Payment for purchases in March = Cash Purchases + Credit Purchases

Cash Payment for purchases in March = $100,000 + $312,000

Cash Payment for Purchases in March = $412,000