New Ventures intends to start business on January 1. Production plans for the first four months of
Question:
New Ventures intends to start business on January 1. Production plans for the first four months of operations are as follows:
January .........20,000 units
February ......50,000 units
March ..........70,000 units
April .............70,000 units
Each unit manufactured requires 2 pounds of material. The firm would like to end each month with enough raw material inventories to cover 25% of the following month’s production needs. The material costs $7 per pound. Management anticipates paying for 40% of its purchases in the month of purchase. They will receive a 10% discount for these early payments. They anticipate having to defer payment to the next month on 60% of their purchases. No discount will be taken on these late payments. There are no inventories on January 1.
REQUIRED
Prepare a cash disbursements budget for materials for each of the first three months of operations.
Step by Step Answer:
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott