Assume a company’s sales budget for April and May is 39,000 units and 41,000 units, respectively. Its production budget for the same two months is 36,000 units and 37,000 units, respectively. Each unit of finished goods required 5 pounds of raw materials. The company always maintains raw materials inventory equal to 25% of the following months production needs. Also assume the company pays $2.40 per pound of raw material. It always pays for 60% of its raw material purchases in the month of purchase and the remainder in the following month. The accounts payable balance on March 31st is $139,000. How much cash disbursements for raw materials purchases would be shown in the company’s cash budget for April?
Assume a company’s sales budget for April and May is 39,000 units and 41,000 units, respectively. Its production budget for the same two months is 36,000 units and 37,000 units, respectively. Each unit of finished goods required 5 pounds of raw materials. The company always maintains raw materials inventory equal to 25% of the following months production needs.
Also assume the company pays $2.40 per pound of raw material. It always pays for 60% of its raw material purchases in the month of purchase and the remainder in the following month. The accounts payable balance on March 31st is $139,000. How much cash disbursements for raw materials purchases would be shown in the company’s
Solution:
Budgeted cost of raw materials purchases = Budgeted quantity of raw materials purchases *Cost per unit of raw materials
Cash disbursement for raw material purchases = Cash disbursement for previous month purchases in current month + Cash disbursement for current month purchases in current month
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