Metro, Inc. sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 20% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $70,000. All purchases are made on account with 25% of accounts paid in the month of purchase and the remaining 75% paid in the month following the month of purchase. Sales January February March Budgeted cost of goods sold $ 40,000 $ 50,000 $ 60,000 Plus: Desired ending inventory 10,000 Inventory needed 50,000 Less: Beginning inventory (8,000) Required purchases $ 42,000 Based on this information the total cash paid in March to settle accounts payable is

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Business

Natalie Krause

29 November, 19:49

Metro, Inc. sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 20% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $70,000. All purchases are made on account with 25% of accounts paid in the month of purchase and the remaining 75% paid in the month following the month of purchase. Sales January February March Budgeted cost of goods sold $ 40,000 $ 50,000 $ 60,000 Plus: Desired ending inventory 10,000 Inventory needed 50,000 Less: Beginning inventory (8,000) Required purchases $ 42,000 Based on this information the total cash paid in March to settle accounts payable is

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Megan Becker · Answer 1

The total cash paid in March for accounts payable is $ 64500 as per the explanation below

Explanation:

We are required to calculate the total cash paid in March to settle account payable.

It's given to us that $ 42000 is purchased in January. Of this 25% will be paid in the month of purchase (Feb) with 75% being paid in March.

Amount due in February from this purchase will be $42000 x 75% = 31500

We now need to work out the inventory for February

Opening Inventory ($10000)

Inventory needed $ 60000

Closing Inventory $ 12000

Purchases for February $ 62000

Amount due in March = 62000 x 75% = $ 46500

Inventory purchased in March

Opening Inventory ($12000)

Inventory needed $70000

Closing Inventory $14000

Purchases for March = $ 72000

Amount settled in current month = $72000 x 25% = $ 18000

Thus the total cash used to settle account payable in March is $ 46500 + $ 18000 = $ 64500