Bond Company budgets the following purchases of direct materials for the first quarter of the year: January February March 150,000 $ Budgeted purchases $ 120,000 $90,000 All purchases of direct materials are made on credit. On average, the company pays 80% of its purchases in the month of sales and the remainder in the following month. Required: 1. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that there is no (cash) discount for early payment? 2. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that the purchase terms are 2/15, net 30? The company's policy is to take advantage of all cash discounts for early payment. 3a. Using the purchase terms in Requirement 2, calculate the opportunity cost if Bond does not decide to take advantage of the early payment discount. 3b. Can it be considered good economic policy to take advantage of early payment discounts?
Bond Company budgets the following purchases of direct materials for the first quarter of the year: January February March 150,000 $ Budgeted purchases $ 120,000 $90,000 All purchases of direct materials are made on credit. On average, the company pays 80% of its purchases in the month of sales and the remainder in the following month. Required: 1. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that there is no (cash) discount for early payment? 2. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that the purchase terms are 2/15, net 30? The company's policy is to take advantage of all cash discounts for early payment. 3a. Using the purchase terms in Requirement 2, calculate the opportunity cost if Bond does not decide to take advantage of the early payment discount. 3b. Can it be considered good economic policy to take advantage of early payment discounts?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Transcribed Image Text:Bond Company budgets the following purchases of direct materials for the first quarter of the year:
January February March
150,000 $
Budgeted purchases $
120,000 $90,000
All purchases of direct materials are made on credit. On average, the company pays 80% of its purchases in the month of
sales and the remainder in the following month.
Required:
1. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under
the assumption that there is no (cash) discount for early payment?
2. For the months of February and March, what are the budgeted cash payments for purchases of direct materials under
the assumption that the purchase terms are 2/15, net 30? The company's policy is to take advantage of all cash discounts
for early payment.
3a. Using the purchase terms in Requirement 2, calculate the opportunity cost if Bond does not decide to take advantage
of the early payment discount.
3b. Can it be considered good economic policy to take advantage of early payment discounts?
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