Question

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

• Sales are budgeted at $400,000 for November, $380,000 for December, and $370,000 for January. 

• Collections are expected to be 45% in the month of sale and 55% in the month following the sale. 

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

• The company would like 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 $24,600. 

• Monthly depreciation is $15,600. 

• Ignore taxes. 

Balance Sheet October 31
Assets
Cash	$	20,600
Accounts receivable		70,600
Merchandise inventory		195,000
Property, plant and equipment, net of $572,600 accumulated depreciation		1,094,600
Total assets	$	1,380,800
Liabilities and Stockholders' Equity
Accounts payable	$	254,600
Common stock		820,600
Retained earnings		305,600
Total liabilities and stockholders' equity	$	1,380,800

Required:

Prepare the December cash disbursements for merchandise purchases.

Please show process.

Answer 1

Computation of cash disbursement for merchandise purchases for the month December are as follow:

First of all we will calculate purchase for the month of November because Payment of Purchase in November will be made in the month December. Formula to calculate purchase are:

Beginning Inventory + Purchase - Ending Inventory = Cost of Goods Sold

Therefore,

Purchase = Cost of Goods Sold + Ending Inventory - Beginning Inventory

Following information has been given in the question:

October Nov Dec Jan Sales $ 4,00,000 $ 3,80,000 $ 3,70,000 Cost of Goods sold $ 3,00,000 $ 2,85,000 $ 2,77,500 (75% of sales) (400000X75%)|(380000X75%)|(370000X75%) Ending Inventories $ 1,95,000 $ 1,85,250 $ 1,80,375 (65% of Next months Cost of goods sold) (300000x65%)|(285000x65%)|(277500x65%)

using the values given,

Purchase of November = $300,000 + $185,250 - $195,000 = $290,250

it has been provided in the question that payment of merchandise purchase will be made in the month following the purchase therefore Payment to Merchandise in the month December will be Purchase of November hence December cash disbursement for merchandise purchase will be $290,250.