Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow: o Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000 for January.
O Collections are expected to be 80% in the month of sale, 17% in the month following the sale, and 3% uncollectible.
O The cost of goods sold is 75% of sales.
O The company would like to maintain ending merchandise inventories equal to 70% 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 $21,800.
O Monthly depreciation is $19,000.
O Ignore taxes. The cost of December merchandise purchases would be:

Question

Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow: o Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000 for January.
O Collections are expected to be 80% in the month of sale, 17% in the month following the sale, and 3% uncollectible.
O The cost of goods sold is 75% of sales.
O The company would like to maintain ending merchandise inventories equal to 70% 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 $21,800.
O Monthly depreciation is $19,000.
O Ignore taxes.  The cost of December merchandise purchases would be:

Quizplus · Accepted Answer

Cost of goods sold for December = 75% of budgeted sales for December = 0.75 x $340,000 = $255,000 
Ending inventory for November = 70% of December’s cost of goods sold = 0.70 x $255,000 = $178,500 
Therefore, the cost of December merchandise purchases = cost of goods sold for December – increase in inventory = $255,000 - $178,500 = $76,500. But, this is not the answer to the question asked. The question asks for the cost of December merchandise purchases, which means the amount of merchandise purchased in December to be sold later. Since payment for merchandise is made in the month following the purchase, the cost of merchandise purchased in December will actually be paid in January. 
Therefore, the cost of December merchandise purchases = the cost of merchandise sold in January, which is equal to the cost of goods sold for January = 75% of budgeted sales for January = 0.75 x $340,000 = $255,000. Thus, the best choice would be option D.

Bracken Corporation Is a Small Wholesaler of Gourmet Food Products