Question

New Corp began operations in January. Purchases for January, February, and March were $40,000, $50,000, and $70,000, respectively. New Corp pays 40% of each month’s purchases in the month of purchase and 60% in the following month. How much total cash will be paid in March regarding purchases

Answer 1

Purchases on January = $ 40,000

Purchases on February = $ 50,000.

Purchases on March = $ 70,000.

It is given that 40% of each months purchase is paid on that month itself while 60% is paid on following month. So the total cash paid on March will include 40% of purchase made in March and 60% of purchase made in February.

40% of March = 70,000 x 40%

40% of March = $ 28,000

60% of February = 50,000 x 60%.

60% of February = $ 30,000.

Total cash paid on March = $ 58,000.

Hence, $ 58,000 is the correct answer.

SUMMARY:

Here, 60% of February purchase is paid on March. Also 40% of March is also paid on March.

Hence, $ 58,000 is the correct answer.