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 $303,000 for November, $323,000 for December, and $223,000 for January.

Collections are expected to be 70% in the month of sale and 30% 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 80% 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 $22,400.

Monthly depreciation is $27,500.

Ignore taxes.

The cost of December merchandise purchases would be:

Balance Sheet
October 31 Assets Cash $ 33,000 Accounts receivable 83,500 Merchandise inventory 181,800 Property, plant and equipment, net of $624,000 accumulated depreciation 918,000 Total assets $ 1,216,300 Liabilities and Stockholders' Equity Accounts payable $ 252,000 Common stock 753,000 Retained earnings 211,300 Total liabilities and stockholders' equity $ 1,216,300

Explanation / Answer

Cost of goods sold for December ($323,000*75%) $   242,250 Add: Ending inventory ($223,000*75%*80%) $   133,800 Less: Beginning inventory ($323,000*75%*80%) $ (193,800) Cost of December merchandise purchases $   182,250

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