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

Question

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

o Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January.
o Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible.
o The cost of goods sold is 65% of sales.
o The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
o Other monthly expenses to be paid in cash are $20,300.
o Monthly depreciation is $20,000.
o Ignore taxes.

December cash disbursements for merchandise purchases would be:

  

$141,700

   

$149,500

   

$157,300

   

$81,900

Balance Sheet
October 31 Assets Cash $27,000 Accounts receivable, net of allowance for uncollectible accounts 79,000 Merchandise inventory 101,400 Property, plant and equipment, net of $574,000 accumulated depreciation 1,082,000 Total assets $1,289,400 Liabilities and Stockholders' Equity Accounts payable $169,000 Common stock 740,000 Retained earnings       380,400 Total liabilities and stockholders' equity $1,289,400

Explanation / Answer

Since the merchandise payment is made in following month, cash disbursement for December will be the merchandise payables for Noember Merchandise purchase required in Nov Cost of goods required for Nov Sale= 65% of November sale value =260000*65% Cost of goods sold           169,000 Ending inventory in Nov= 60% of following month Cost of goods sold i.e. Cost of goods sold in December Dec Sale= 230000 COGS of Dec Sale=230000*65%           149,500 60% of this will be ending inventory of Dec =149500*60%              89,700 November month opening merchandise inventory as given in Oct balance sheet           101,400 November purchase requirement Cost of goods requirement           169,000 Add ending inventory requirement              89,700 Less Opening inventory         (101,400) Purchase required           157,300 This 157,300 will be paid in December so option C is correct

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