Question

Balance sheet and other cash information for International Gourmet Foods is presented below.

• Sales are budgeted at $230,000 for November, $210,000 for December, and $200,000 for January.
• Collections are expected to be 40% in the month of sale and 60% in the month following the sale.
• The cost of goods sold is 65% of sales.
• The company would like to maintain ending merchandise inventories equal to 55% 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 $22,900.
• Monthly depreciation is $13,900.
• Ignore taxes.

The difference between cash receipts and cash disbursements for December would be:

Multiple Choice

• $56,750

• $42,563

• $29,225

• $98,100

Answer 1

Answer:

$56750.

Explanation:

Step 1:

Computation of cash received in December:

Cash received = $230000 x 60% + $210000 x 40%

= $138000 + $84000

= $222000

Step 2:

Computation of purchase price of November:

Cost of goods sold = $230000 x 65% = $149500

Beginning inventory = $149500 x 55% = $82225

Ending inventory = ($210000 x 65%) x 55% = $75075

Cost of goods sold = Beginning inventory + purchase - Ending inventory

= $149500 = $82225 + Purchase - $75075

= $149500 = purchase + $7150

Purchase = $149500 - $7150 = $142350

Step 3:

Computation of total cash payment in December:

Total cash payment = Purchase of November + Other monthly expenditure of December

= $142350 + $22900

= $165250

Step 4:

Difference between cash receipts and cash payment:

Total cash received = $222000

Total cash payment = $165250

Difference = $222000 - $165250 = $56750.