Hinrich Entertainment distributes a DVD which sells for $12 per unit. Hinrich pa

Question

Hinrich Entertainment distributes a DVD which sells for $12 per unit. Hinrich pays $7 per unit to buy the product. Selling cost of $1 per unit is incurred to deliver the product to the customer. This is paid in cash when the product is sold. Additionally, Hinrich has $50,000 per month in fixed selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in the next month. It is Hinrich's policy to maintain an inventory at the end of each month equal to 30% of the next month's projected cost of sales. Hinrich makes 30% of sales in cash, and the rest are on credit. Credit sales are collected in the month after sale. Budgeted monthly sales in units for the first five months of 2008 are as follows:
January

20,000 units
February

22,000 units
March

26,000 units
April

28,000 units
May

40,000 units

Reference: Ref 10-5

What will the cash payment for selling and administrative expenses be in April?

Explanation / Answer

Hi, Answer is 47000 (23500 for the month of April and 23500 for the month of March) This is because depreciation involves no outflow of cash. Thanks, Aman

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