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. December cash disbursements for 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.  December cash disbursements for merchandise purchases would be:

Quizplus · Accepted Answer

To calculate the cash disbursements for merchandise purchases in December, we need to start by determining the cost of goods sold for December.

Cost of goods sold for December = 80% of sales for December = 0.8 x $310,000 = $248,000

Next, we need to calculate the desired ending merchandise inventory for December.

Desired ending merchandise inventory for December = 70% of cost of goods sold for January = 0.7 x 80% x $210,000 = $117,600

Now we can calculate the total merchandise needed for December.

Total merchandise needed for December = cost of goods sold + desired ending merchandise inventory = $248,000 + $117,600 = $365,600

Since 65% of sales are collected in the month of sale and 35% are collected in the following month, we can calculate November collections as:

November collections = 65% of November sales = 0.65 x $290,000 = $188,500

We can also calculate December collections since we know November collections:

December collections = 35% of November sales + 65% of December sales = (0.35 x $290,000) + (0.65 x $310,000) = $101,500 + $201,500 = $303,000

To calculate the cash disbursements for merchandise purchases in December, we need to consider the purchases made in November and December that will be paid for in December.

Purchases made in November = total merchandise needed for December x 35% = $365,600 x 35% = $127,460

Purchases made in December = desired ending merchandise inventory for December - merchandise on hand at the end of November = $117,600 - (70% of $188,500) = $117,600 - $131,950 = -$14,350

Note that since the merchandise on hand at the end of November is insufficient to meet the desired ending inventory for December, additional purchases are needed.

Therefore, cash disbursements for merchandise purchases in December = purchases made in November + purchases made in December = $127,460 + (-$14,350) = $113,110

Finally, we add in the other monthly expenses to be paid in cash ($21,100) and the monthly depreciation ($21,000) to get the total cash disbursement for December:

Total cash disbursement for December = cash disbursements for merchandise purchases + other monthly expenses + monthly depreciation = $113,110 + $21,100 + $21,000 = $155,210

Therefore, the best choice is B, $243,200.

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