Fortune Company's direct materials budget shows the following cost of materials to be purchased for the coming three months:

January February March
Material purchases $12,040 $14,150 $10,970

Payments for purchases are expected to be made 50% in the month of purchase and 50% in the month following purchase.

The December Accounts Payable balance is $6,500. The budgeted cash payments for materials in January are:

Multiple Choice

a.$18,540.

b.$13,095.

c.$6,500.

d.$9,270.

e.$12,520.

e.$12,520.

Explanation:

The computation of the cash payment for material is shown below:

Budgeted Cash Payment for the Month of January = December Accounts Payable + January sales × month of purchase percentage

= $6,500 +  ($12040 × 50%)

= $12,520

We simply added the December account payable to the January sales after considering the month of purchase percentage so that the correct amount could arrive

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