Asked by Landon Busse on May 12, 2024
Verified
Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:Sales are budgeted at $281,000 for November, $321,000 for December, and $212,000 for January.Collections are expected to be 75% in the month of sale and 25% in the month following the sale.The cost of goods sold is 75% of sales.The company desires to have an ending merchandise inventory at the end of each month equal to 90% 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 $20,100.Monthly depreciation is $22,000.Ignore taxes. 
The cost of December merchandise purchases would be:
A) $240,750
B) $210,750
C) $143,100
D) $167,175
Merchandise Purchases
The total cost of goods bought for resale during a specific period in a retail or wholesale business.
Cost of Goods Sold
The total cost of manufacturing and delivering a product to the customer, including raw materials, labor, and overhead.
Collections
The process of recovering amounts owed to a business by its customers.
- Understand the calculations involved in the budgeting process for sales, collections, and purchases.
- Evaluate the cost of goods sold, with emphasis on anticipated ending inventory levels and the timing of payment schedules.
Verified Answer
AA
Ashton AgredanoMay 18, 2024
Final Answer :
D
Explanation :
To find the cost of December merchandise purchases, we need to first find the cost of goods sold for December.
Cost of goods sold for December = 75% of December sales = 0.75 x $321,000 = $240,750
Next, we need to find the desired ending merchandise inventory for December:
Desired ending merchandise inventory for December = 90% of January cost of goods sold = 0.9 x (75% x $212,000) = $143,100
Now we can calculate the total cost of merchandise needed for December:
Total cost of merchandise needed for December = Cost of goods sold for December + desired ending merchandise inventory for December - beginning merchandise inventory for December
Beginning merchandise inventory for December = 90% of November cost of goods sold = 0.9 x (75% x $281,000) = $178,087.50
Total cost of merchandise needed for December = $240,750 + $143,100 - $178,087.50 = $205,762.50
However, this is not one of the answer choices. The closest answer choice is D, $167,175. This is incorrect, as it is less than the cost of goods sold for December.
Therefore, there is no correct answer choice given. The cost of December merchandise purchases is $205,762.50.
Cost of goods sold for December = 75% of December sales = 0.75 x $321,000 = $240,750
Next, we need to find the desired ending merchandise inventory for December:
Desired ending merchandise inventory for December = 90% of January cost of goods sold = 0.9 x (75% x $212,000) = $143,100
Now we can calculate the total cost of merchandise needed for December:
Total cost of merchandise needed for December = Cost of goods sold for December + desired ending merchandise inventory for December - beginning merchandise inventory for December
Beginning merchandise inventory for December = 90% of November cost of goods sold = 0.9 x (75% x $281,000) = $178,087.50
Total cost of merchandise needed for December = $240,750 + $143,100 - $178,087.50 = $205,762.50
However, this is not one of the answer choices. The closest answer choice is D, $167,175. This is incorrect, as it is less than the cost of goods sold for December.
Therefore, there is no correct answer choice given. The cost of December merchandise purchases is $205,762.50.
Learning Objectives
- Understand the calculations involved in the budgeting process for sales, collections, and purchases.
- Evaluate the cost of goods sold, with emphasis on anticipated ending inventory levels and the timing of payment schedules.