Question

Kids Company expects to purchase: $40,000 of DM in June; $60,000 of DM in July; Three-quarters of all purchases are paid for in the month of purchase; and the other one-quarter are paid for in the month following the month of purchase; In addition, 2% discount is received for payments made in the month of purchase. Required: Compute the amount of July’s cash payments for DM purchases.

Answer 1

July's cash payments for DM purchases are the sum of payments for June purchases due in July and the discounted payments of July purchases in July, totaling $74,100.

Step-by-step explanation:

To calculate July's cash payments for direct materials (DM) purchases, we need to consider the purchases made in both June and July, how payments are split between the months of purchase and the following month, and any discounts applied.

For June purchases worth $40,000:
75% of June purchases paid in July = 0.75 * $40,000 = $30,000.
No discount applies as it is not the month of purchase.

For July purchases worth $60,000:
75% paid in July = 0.75 * $60,000 = $45,000.
2% discount on July payments: 2% * $45,000 = $900.
So, the actual payment for July purchases in July after discount = $45,000 - $900 = $44,100.

The total July cash payments = payments for June's purchases + discounted payments for July's purchases.
Final calculation: $30,000 (June's portion) + $44,100 (July's portion after discount) = $74,100.