Question

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

  

•	Sales are budgeted at $450,000 for November, $470,000 for December, and $470,000 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 $22,900.
•	Monthly depreciation is $20,100.
•	Ignore taxes.

Balance Sheet
October 31
Assets
Cash	$39,000
Accounts receivable, net of allowance for uncollectible accounts	87,000
Merchandise inventory	219,375
Property, plant and equipment, net of $615,000 accumulated depreciation	1,225,000
Total assets	$1,570,375
Liabilities and Stockholders' Equity
Accounts payable	$254,375
Common stock	950,000
Retained earnings	366,000
Total liabilities and stockholders' equity	$1,570,375

  
The cost of December merchandise purchases would be:

a) $229,125

b) $352,500

c) $87,000

d) $39,000

Answer 1

December cost of merchandise purchase = Cost of goods sold+Desired ending inventory-Beginning inventory

= (470000*75%)+(470000*75%*65%)-(470000*75%*65%)

December cost of merchandise purchase = 352500

So answer is b) $352500