Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.Collections are expected to be 65% in the month of sale and 35% in the month following the sale.The cost of goods sold is 80% of sales.The company desires to have an ending merchandise inventory at the end of each month equal to 70% 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 $21,100.Monthly depreciation is $21,000.Ignore taxes. The cost of December merchandise purchases would be:

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 $290,000 for November, $310,000 for December, and $210,000 for January.Collections are expected to be 65% in the month of sale and 35% in the month following the sale.The cost of goods sold is 80% of sales.The company desires to have an ending merchandise inventory at the end of each month equal to 70% 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 $21,100.Monthly depreciation is $21,000.Ignore taxes.  The cost of December merchandise purchases would be:

Quizplus · Accepted Answer

Step 1: Calculate the estimated collections for each month
- November sales: $290,000 x 65% = $188,500
- December sales: $310,000 x 65% = $201,500
- January sales: $210,000 x 65% = $136,500
- November collections: $290,000 x 35% = $101,500
- December collections: $310,000 x 35% = $108,500
- Total collections: $535,500

Step 2: Calculate the cost of goods sold for each month
- November cost of goods sold: $290,000 x 80% = $232,000
- December cost of goods sold: $310,000 x 80% = $248,000
- January cost of goods sold: $210,000 x 80% = $168,000

Step 3: Calculate the desired ending merchandise inventory for each month
- November: $248,000 x 70% = $173,600
- December: $168,000 x 70% = $117,600
- January: $0 (since there is no February cost of goods sold)

Step 4: Calculate the merchandise purchases for each month
- November: $232,000 + $173,600 - $0 = $405,600
- December: $248,000 + $117,600 - $173,600 = $192,000
- January: $168,000 + $0 - $117,600 = $50,400

Therefore, the cost of December merchandise purchases would be $192,000 (choice D).

Dilly Farm Supply Is Located in a Small Town in the Rural