Question
Bond Company budgets the following purchases of direct materials for the first quarter of the year: January February March Budgeted purchases $155,000 $114,000 $ 126,000
Bond Company budgets the following purchases of direct materials for the first quarter of the year: |
January | February | March | |||
Budgeted purchases | $155,000 | $114,000 | $ | 126,000 | |
All purchases of direct materials are made on credit. On average, the company pays 80% of its purchases in the month of sales and the remainder in the following month. |
Required: |
1. | For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that there is no (cash) discount for early payment? |
2. | For the months of February and March, what are the budgeted cash payments for purchases of direct materials under the assumption that the purchase terms are 2/15, net 30? The companys policy is to take advantage of all cash discounts for early payment. |
3a. | Using the purchase terms in Requirement 2, calculate the opportunity cost if Bond does not decide to take advantage of the early payment discount (Enter your answer as a whole percentage rounded to two decimal places (i.e. .1234 = 12.34%)) |
3b. | Can it be considered good economic policy to take advantage of early payment discounts? |
Yes or No |
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