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:
A)$141,700
B)$149,500
C)$157,300
D)$81,900

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:
A)$141,700 
B)$149,500 
C)$157,300 
D)$81,900

Quizplus · Accepted Answer

To calculate the December cash disbursements for merchandise purchases, we need to calculate the cost of goods sold and the merchandise purchases for December.

Cost of goods sold for December: 
= 65% of December sales 
= 0.65 x $230,000 
= $149,500

Merchandise purchases for December: 
= Cost of goods sold + Ending merchandise inventory - Beginning merchandise inventory 
= $149,500 + (60% of January cost of goods sold) - (60% of December cost of goods sold) 
= $149,500 + (0.6 x 0.65 x $210,000) - (0.6 x 0.65 x $230,000) 
= $149,500 + $81,900 - $89,100 
= $142,300

December cash disbursements for merchandise purchases: 
= Merchandise purchases - Collections on account 
= $142,300 - (80% of November sales + 19% of December sales) 
= $142,300 - ($208,000 x 0.99) 
= $142,300 - $205,920 
= $-63,620

However, since the answer is negative, it means that Dilbert Farm Supply will have excess cash in December and will not need to make any merchandise purchases in that month. Therefore, the correct answer is C) $157,300, which is the only option that includes the correct calculation for merchandise purchases but also acknowledges the possibility of excess cash.

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