Question

Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:

Answer 1

Answer:

a) Considering Read Company only uses cash for its payments: 78,000

b) Considering Read Company uses another means of payment for balances: 36,000

Explanation:

a) Read Company would pay 60% of the first quarter purchases in cash along with 40% of the second quarter purchases:

(70,000.00 * 0.60) + (90,000.00 * 0.40) = 42,000.00 + 36,000.00 = 78,000.00

b) Read Company would only pay 40% of purchases of the second quarter in cash as it uses other means of payment for the first quarter balances:

90,000.00 * 0.40 = 36,000.00