Question

The following data have been taken from the budget reports of Brandon company, a merchandising company.

P = Purchases S = Sales
January: P = $160,000 S = $100,000
February: P = $160,000 S = $200,000
March: P = $160,000 S = $240,000
April: P = $140,000 S = $300,000
May: P = $140,000 S = $260,000
June: P = $120,000 S = $240,000
Forty percent of purchases are paid for in cash at the time of purchase, 30% are paid for in the following month and the remaining 30% is paid in the 2nd month after the purchase. Purchases for the previous November and December were $150,000 per month. Employee wages are paid in cash each month and amount to 10% of sales for the month in which the sales occur. Selling and administrative expenses are paid in cash each month and amount to 20% of the following month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000 are paid quarterly in January and April. Brandon's cash disbursements for the month of April would be:
A. $140,000
B. $254,000
C. $200,000
D. $248,000

Answer 1

Brandon Company's total cash disbursements for April include payments for purchases from previous months, employee wages, and the quarterly interest payment, which sums up to $202,000.

Step-by-step explanation:

To calculate Brandon Company's cash disbursements for the month of April, we need to consider several factors including payments for purchases, employee wages, selling and administrative expenses, and interest payments.

Purchases: $140,000 in April with the payment structure being 40% current month, 30% following month, and 30% in the second month after the purchase. So for April purchases, 40% <$strong>paid in April is $56,000.

• March purchases: $160,000 with 30% <$strong>paid in April equates to $48,000.
• February purchases: $160,000 with the remaining 30% <$strong>paid in April equals $48,000.
• Employee wages: 10% of April sales ($300,000) which amounts to <$strong>$30,000 paid in April.
• Selling and administrative expenses: 20% of May sales ($260,000) which equals <$strong>$52,000, but this amount is paid in May, so it doesn't count for April disbursements.
• Interest payments: $20,000 are paid in <$strong>January and April.

Total disbursements for April = Payments for purchases + Employee wages + Interest payments = $56,000 (40% of April purchases) + $48,000 (30% of March purchases) + $48,000 (30% of February purchases) + $30,000 (employee wages for April) + $20,000 (interest) = $202,000.