Question

Sheridan Company expects to purchase $230000 of materials in July and $240000 of materials in August. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be?

Answer 1

$237,500

Step-by-step explanation:

The computation of cash disbursements for materials is shown below:-

August cash disbursement for materials Purchased = (Materials in July × Purchases are paid for in the month) + (Materials in August × Following month of purchase)

= ($230000 × 1 ÷ 4) + ($240000 × 3 ÷ 4)

= ($230000 × 0.25) + ($240,000 × 0.75)

= $57,500 + $180,000

= $237,500

Therefore for computing the cash disbursements for materials we simply applied the above formula.