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?

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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

Question

Bond Company budgets the following purchases of direct materials for the first quarter of the year:
February
$120,000
March
$90,000
Budgeted purchases
All purchases of direct materials are made on credit. On average, the company pays for 80% of its purchases in the month of
acquisition and the remainder in the following month. Purchases take place fairly evenly throughout the month.
January
$150,000
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?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3A
Req 3B
Using the purchase terms in Requirement 2, calculate the opportunity cost if Bond does not decide to take advantage of the
early payment discount. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places
(i.e. .1234 12.34%).)
Opportunity cost
%
< Req 2
Req 3B

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