Question

5. A company manufactures its products the month before they're sold and pays for all materials...

5. A company manufactures its products the month before they're sold and pays for all materials in the month of purchase. If sales of $6.5 million are expected in September and the company pays 48 percent of sales in material costs, then what's the materials cash disbursement in August? A. $3.38 million B. $2.87 million C. $3.12 million D. $3.23 million

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Answer #1

To calculate the August payment, one should know September sales and material cos.

Reason: Payments for purchases are made in the month of purchase. For September sales amount will be received in August only. For goods manufactured in September, will be purchases done in August.

Material disbursement in August = Sales * % material cost

Material disbursement in August = $6.5 million * 48%

Material disbursement in August = 3.12 million

Therefore, the Material disbursement in August in 3.12 million.

Option c is correct.

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