Question

MTA Ltd bases its bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 5,000 units are planned to be sold in April. The variable selling and administrative expense is $10.70 per unit. The budgeted fixed selling and administrative expense is $127,380 per month, which includes depreciation of $8,880 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be _______________.

1)

$172,000

2)

$189,760

3)

$118,500

4)

$180,880

Answer 1

Calculation of budgeted selling and administrative expense for April month:

Variable selling and administrative expenses = Budgeted Sales * Variable selling and administrative expenses per unit

= 5,000 units * $10.70 per unit

= $53,500

Fixed selling and administrative expenses = $127,380

Total Budgeted selling and administrative expenses = Variable selling and administrative expenses + Fixed selling and administrative expenses

=$53,500 + $127,380

= $180,880

Calculation of cash disbursements for selling and administrative expenses for April month:

Cash disbursements for selling and administrative expenses = Total Budgeted selling and administrative expenses - Depreciation per month

= $180,880 - $8,880

= $172,000.

Hence, the answer is 1) $172,000.

Note: Depreciation does not involve cash inflow or outflow.