Question

Grinnell Manufacturing Company has the following information for 2015:

Month	Budgeted Sales
January	$76,000
February	85,000
March	92,000
April	79,000

Budget Expenses per Month

Wages	$15,000
Advertising	12,000
Depreciation	3,000
Other	4 percent of sales

Note: All cash expenses are paid as incurred; Collections from sales are 50% in the month of sale and 50% in the month following the sale; December 2014 sales were $110,000.


What is the expected total cash disbursements for expenses in February?

		$30,000
		$30,400
		$27,000
		$30,200
		$33,400

Answer 1

It is given that all the cash expenses are paid as incurred, means they are paid in the month in which they are incurred.

Wages	$15,000
Advertising	$12,000
Other [ 4% * February month's sales = 4% * $85,000 ]	$3,400
Total cash disbursement for expenses in February	$30,400

Note : Depreciation is a non-cash expenditure and hence it cannot be paid.