Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January.Collections are expected to be 90% in the month of sale and 10% in the month following the sale.The cost of goods sold is 75% of sales.The company desires to have an ending merchandise inventory equal to 60% of the following 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 $24,700.Monthly depreciation is $16,000.Ignore taxes. The cash balance at the end of December would be:

Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January.Collections are expected to be 90% in the month of sale and 10% in the month following the sale.The cost of goods sold is 75% of sales.The company desires to have an ending merchandise inventory equal to 60% of the following 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 $24,700.Monthly depreciation is $16,000.Ignore taxes.  The cash balance at the end of December would be:

Quizplus · Accepted Answer

To solve for the ending cash balance at the end of December, we need to first calculate the cash inflows and outflows for the month.

Cash inflows:
- Collections from November sales: $350,000 x 90% = $315,000
- Collections from December sales: $320,000 x 90% = $288,000

Total cash inflows: $603,000

Cash outflows:
- Cost of goods sold for December sales: $320,000 x 75% = $240,000
- Ending merchandise inventory for January: $240,000 x 60% = $144,000
- Other monthly expenses: $24,700
- Depreciation: $16,000

Total cash outflows: $424,700

Net cash flow for December: $603,000 - $424,700 = $178,300

Since the company desires to have an ending merchandise inventory equal to 60% of the following month's cost of goods sold, we need to calculate the cost of goods sold for January:

Cost of goods sold for January sales: $300,000 x 75% = $225,000

The ending merchandise inventory for January would be: $225,000 x 60% = $135,000

Finally, we add the net cash flow from December to the cash balance from November and subtract the ending merchandise inventory for January:

Beginning cash balance (November): $0 
Add: Net cash flow for December: $178,300 
Ending merchandise inventory for December: $240,000 x 60% = $144,000 
Subtract: Ending merchandise inventory for January: $135,000

Ending cash balance (December): $19,300

Therefore, the best choice is B: $163,600

Carver Lumber Sells Lumber and General Building Supplies to Building