A 2019 cash budget is being prepared for the purchase of Primer, a merchandise item. Budgeted data are: Cost of goods sold for 2019 P300,000;Accounts payable 1/1/19 20,000; Inventory, 1/1/19 30,000; Inventory 12/31/19 42,000. Purchases will be made in twelve equal monthly amounts and paid for in the following month.

What is the 2019 budgeted cash payment for purchases of Primer?

A. P295,000

B. P300,000

C. P306,000

D. P312,000

A. P295,000

Step-by-step explanation

The key to solving this question lies in understanding the payments for goods purchased. The payment terms imply that purchase of goods in January is paid for in February, purchases made in February would be paid for in March and so on.

At the beginning of the year 2019, the accounts payable balance of P20,000 which relates to purchases made in December 2018 would be paid for in January.

At the end of 2019, the payable balance would be in respect of goods purchased in December 2019 which would be paid in January 2020.

Total payments in 2019=P20,000+eleven months for January-November purchases

Monthly purchases=P300,000/12=P 25,000

Total payments in 2019=P20,000+(P 25,000*11)

Total payments in 2019=P 20,000+P 275,000=P 295,000