Question

Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 1,500 units are planned to be sold in March. The variable selling and administrative expense is $4.60 per unit. The budgeted fixed selling and administrative expense is $35,650 per month, which includes depreciation of $3,000 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the March selling and administrative expense budget should be:

Answer 1

Answer:

  = $39,550

Explanation:

Note that depreciation is the allocation of a sunk cost or historical  cost of an asset over the assets useful life . As such depreciation expense does is not an out-of pocked expense and therefore does not impact cash flow.

Therefore, the cash related selling and distribution expense for Schuepfer is the sum of variable cost and the fixed cost that involve cash.

The cash disbursement for selling and administrative expense is computed as follows

Variable selling and dist. =  $4.60 × 1,500 = $6,900

Fixed selling and distribution (Cash -based) = $35,650 - $3,000 = 32,650

Cash disbursement  =  $6,900 + $32,650

                                 = $39,550