Question

Corporation pays for 60% of its raw materials purchases in the month of purchase and 40% in the following month. If the budgeted cost of raw materials purchases in July is $256,550 and in August is $278,050, then in August the total budgeted cash disbursements for raw materials purchases is closest to:

Answer 1

It is given that 60% of purchases are paid on the month of purchase while balance 40% is paid on following month of purchase. So in August, the total cash disbursements of raw materials will include 40% of raw material purchased on July and 60% of raw materials purchased on August.

40% of raw material on July = 256,550 x 40%

40% of raw material on July = $ 102,620

60% of raw material on August = 278,050 x 60%

60% of raw material on August = $ 166,830

Total cash disbursements on August = 102,620 + 166,830

Total cash disbursements on August = $ 269,450

Hence, $ 269,450 is the correct answer.

SUMMARY:

$ 269,450 is the correct answer.