XO Manufacturing is preparing its budget for next year. All raw materials are purchased on credit. XO Manufacturing's raw material suppliers offer a 2.5% discount for payment within the month of purchase. XO estimates that it will pay for 25% of raw material purchases within the month of purchase. 60% of the remaining raw material purchases will be paid for one month after the month of purchase while 40% will be paid for two months after the month of purchase. The raw materials budget shows budgeted purchases of £500,000 in January 2021, £504,000 in February 2021, £520,000 in March 2021 and £536,000 in April 2021. What is the figure for cash payments for raw materials purchases that XO Manufacturing should present in its cash budget for April 2021?
A) £503,550
B) £515,850
C) £519,200
D) £644,250

Question

Quizplus · Accepted Answer

In April, XO Manufacturing will pay 25% of April's purchases (£536,000) within the month, 60% of March's remaining purchases (£520,000), and 40% of February's remaining purchases (£504,000). The calculation is: (25% of £536,000) + (60% of 75% of £520,000) + (40% of 75% of £504,000).

XO Manufacturing Is Preparing Its Budget for Next Year