Question

Sophia, inc. is preparing its cash budget for the fourth quarter. the inventory manager advises that materials purchases will be $40,000 in october and will increase by 25% for each month thereafter due to the holiday season. sophia's purchases in september were $32,000. sophia pays for purchases 50% in the month after sale and 50% in the 2nd month after the sale. what are sophia's budgeted cash payments for purchases in november?

Answer 1

Sophia Inc.'s budgeted cash payments for purchases in November will be $36,000. This amount includes 50% of October's purchase total ($20,000) and 50% of September's purchase total ($16,000).

Step-by-step explanation:

To calculate Sophia Inc.'s budgeted cash payments for purchases in November, we need to look at the purchases that will be paid for during that month according to the company's payment policy. Purchases are split with 50% paid in the month following the sale, and 50% in the second month after the sale. Given that the inventory purchases for October are $40,000 and these increase by 25% each month, the purchases for November will be $40,000 + (25% of $40,000) = $50,000.

Therefore, the payments for November will include 50% of October's purchases and 50% of September's purchases. The payments for November will be calculated as follows:

• 50% of October purchases: 50% of $40,000 = $20,000
• 50% of September purchases: 50% of $32,000 = $16,000

Adding these two amounts gives us the total budgeted cash payments for November:

$20,000 (from October) + $16,000 (from September) = $36,000

Answer 2

Sophia's purchases are increasing each month by 25%. In September, the purchases were $32000. In October, the purchases will be $40,000. In November, the purchases will be $50,000 which is 25% more than the October purchases of $40,000. Sophia pays 50% for the November purchases in December (the month after) and 50% in January (2 month after sale), so she will pay $25,000 in December and $25,000 in January for purchases in November.