Question

A company anticipates monthly sales of $300,000 for the months of April, May, June, and July. Materials represent 50% of sales, and because of level production, material purchases will be equal for each month. Materials are paid for one month after the month purchased. Labor costs are $16,000 in April, $19,000 in May, $16,000 in June, and $21,000 in July. Fixed overhead is $12,000 per month. General and administrative expenses are $2,000 per month, interest expense of $2,500 is paid in May, and new equipment of $10,000 is also purchased in May. What are the company's total cash payments in May?

Answer 1

The company's total cash payments in May is $195,500 and this can be determined by preparing a cash budget.

What is a cash budget?

A cash budget is a company's estimation of its cash inflows and outflows over a specified period of time. A cash budget provides a company with financial insight into its cash requirements, including shortages and surpluses.  The preparation of a cash budget helps the company to determine an efficient use of its available cash.

Data and Calculations:

                                                April            May           June            July

Anticipated sales             $300,000   $300,000   $300,000    $300,000

Purchases                           150,000    $150,000       150,000       150,000

Labor costs                           16,000        19,000         16,000          21,000

Fixed overhead                    12,000        12,000         12,000          12,000

General and admin. exp.      2,000          2,000          2,000           2,000

Interest expense                                       2,500

Equipment purchase                               10,000

Total cash payments in May             $195,500

Thus, the company's total cash payments in May is $195,500.

Learn more about cash budgets at brainly.com/question/8707644