Question

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

  

•

Sales are budgeted at $400,000 for November, $420,000 for December, and $420,000 for January.

•

Collections are expected to be 80% in the month of sale, 18% in the month following the sale, and 2% uncollectible.

• The cost of goods sold is 75% of sales.
•

The company would like to maintain ending merchandise inventories equal to 65% 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 $22,400.
• Monthly depreciation is $19,600.
• Ignore taxes.

Balance Sheet
October 31
  Assets
  Cash $34,000
  Accounts receivable, net of allowance for uncollectible accounts 82,000  
  Merchandise inventory 195,000  
  Property, plant and equipment, net of $610,000 accumulated depreciation 1,200,000  
  Total assets $1,511,000  

  Liabilities and Stockholders' Equity
  Accounts payable $251,250  
  Common stock 900,000  
  Retained earnings 359,750  
  Total liabilities and stockholders' equity $1,511,000  

  
The cost of December merchandise purchases would be:

$315,000

$34,000
$204,750
$82,000

Answer 1

Merchandise purchase of december = Cost of goods sold+Desired ending inventory-Beginning inventory

                                                             = (420000*75%)+(420000*75%*65%)-(420000*75%*65%)

Merchandise purchase of december = 315000

So answer is a) $315000