Question

Which of the following statements concerning the cash disbursements amount in the cash budget is true in a manufacturing setting, but not true a merchandise setting?

A. The cash disbursements amount includes planned disbursements for ending inventory.
B. The cash disbursements does not need to equal changes in finished goods inventory.
C. The cash disbursements amount is no longer based off of the purchasing budget.
D. The cash disbursements amount includes planned disbursements for conversion costs.

Answer 1

Answer: D. The cash disbursements amount includes planned disbursements for conversion costs.

Step-by-step explanation:

Manufacturing companies have to set aside money for the conversion of raw materials into manufactured goods so there is a cash disbursement for conversion costs.

Merchandising companies on the other hand buy already made goods so they do not have to convert those. There will therefore be no conversion cost in a merchandising company and so no cash disbursement for same.