Question

Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

o Sales are budgeted at $410,000 for November, $512,000 for December, and $354,000 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 65% 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 $26,100.
o Monthly depreciation is $22,300.
o Ignore taxes.

Balance Sheet October 31
Assets
Cash	$30,900
Accounts receivable, net of allowance for uncollectible accounts	88,400
Merchandise inventory	219,000
Property, plant and equipment, net of $622,000 accumulated depreciation	1,244,000
Total assets	1,582,300
Liabilities and Stockholders' Equity
Accounts payable	$277,000
Common stock	840,000
Retained earnings	465,300
Total liabilities and stockholders' equity	$1,582,300

The cost of December merchandise purchases would be:

Answer 1

Bracken Corporation

Determination of December monthly purchases:

Purchases = Cost of goods sold + ending inventory – beginning inventory

Cost of goods sold for December = 65% of sales

December COGS = 65% x 512,000 = $332,800

Ending inventory = 70% of January’s cost of goods sold

January’s cost of goods sold = 65% of Jan sales

= 65% x 354,000 = $230,100

Ending inventory, December = 70% x 230,100 = $161,070

Beginning inventory, December = ending inventory of November

Ending inventory of November = 70% of Cost of goods sold of December

= 70% x 332,800 = $232,960

Beginning inventory, December = $232,960

December monthly purchases = cogs + ending inventory – beginning inventory

= 332,800 + 161,070 - 232,960 = $260,910

Cost of December monthly purchases = $260,910