The Mo-Mo Co. purchases are equal to 55% of the following month\'s sales. The ac

Question

The Mo-Mo Co. purchases are equal to 55% of the following month's sales. The accounts payable period for the purchases is 60 days while all other expenditures are paid in the month during which they are incurred. Assume that each month has 30 days. The company has compiled this information:

    April           May         June         July

Sales                                        $4,500     $5,200     $5,700     $6,100

Payroll expenses                           400          500          550          575

Rent and other expenses              900          940          980       1,020

Taxes and insurance                  2,500          100       2,500              0

What is the total amount of Mo-Mo's disbursements for the month of June?

Explanation / Answer

Since there is 60-day bills payable period, the purchase of April would be disbursed on June.

April’s purchase = 55% of May’s sales = $5,200 × 55% = $2,860

Cash disbursement of June = April’s purchase + Payroll + Rent + Taxes

                                            = 2,860 + 550 + 980 + 2,500

                                            = $6,890 (Answer)

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