Question

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

• Sales are budgeted at $260,000 for November, $240,000 for December, and $230,000 for January.
• Collections are expected to be 55% in the month of sale and 45% in the month following the sale.
• The cost of goods sold is 80% of sales.
• 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.
• Other monthly expenses to be paid in cash are $23,200.
• Monthly depreciation is $14,200.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	22,000
Accounts receivable		72,000
Merchandise inventory		145,600
Property, plant and equipment, net of $574,000 accumulated depreciation		1,096,000
Total assets	$	1,335,600
Liabilities and Stockholders' Equity
Accounts payable	$	256,000
Common stock		822,000
Retained earnings		257,600
Total liabilities and stockholders' equity	$	1,335,600

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

(A) $29,000

(B) $21,750

(C) $19,400

(D) $72,600

Answer 1

Cash receipt for December = 260000*45%+240000*55% = 249000

November purchase = 260000*80%+240000*80%*70%-145600 = 196800

Cash payment for December = 196800+23200 = 220000

Difference = 249000-220000 = 29000

So answer is a) $29000