Dilly Farm Supply is located in a small town in the rural west. Data regarding t

Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

Sales are budgeted at $251,000 for November, $291,000 for December, and $218,000 for January.

Collections are expected to be 60% in the month of sale and 40% in the month following the sale.

The cost of goods sold is 75% of sales.

The company desires to have an ending merchandise inventory at the end of each month equal to 90% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.

Other monthly expenses to be paid in cash are $20,000.

Monthly depreciation is $25,000.

Ignore taxes.

Balance Sheet October 31 Assets Cash Accounts receivable Merchandise inventory Property, plant and equipment, net of $624,00e accumulated depreciation Total assets $ 26,000 81,000 169,425 946,008 $1,222,425 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 247,000 748,008 227,425 $1,222, 425 The cost of December merchandise purchases would be Multiple Choice $218,250 $188,250 $147150 $168,975

Explanation / Answer

The cost of December Merchandise purchases = ($ 291,000 * 75% *10%) + ($ 218,000 *75% *90%)

= $ 168,975

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