Answered: Bond Company budgets the following…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter9: Profit Planning And Flexible Budgets

Section: Chapter Questions

Problem 45BEB: Pilsner Inc. purchases raw materials on account for use in production. The direct materials...

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Question

Bond Company budgets the following purchases of direct materials for the first quarter of the year:

	January	February	March
Budgeted purchases	$150,000	$110,000	$123,000

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.

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.

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