Question

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow. Sales are budgeted at $254.000 for November, $294.000 for December, and $221,000 for January Collections are expected to be 60% In the month of sale and 40% In the month following the sale. The cost of goods sold is 80% 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 $15,600. • Monthly depreciation is $26.500. • Ignore taxes. $ Balance Sheet October 31 Assets Cash Accounts receivable Merchandise inventory Property, plant and equipment, net of $624,600 accumulated depreciation Total assets 32,600 82,500 182,880 916,000 $1,213,380 Liabilities and stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and sto holders' equity $ 250,000 751,000 212,380 $1,213,380 The cost of December merchandise purchases would be:

Answer 1

Cost of Goods Sold = Opening Inventory + Purchases - Closing Inventory
(or)
Purchases = Cost of Goods Sold + Closing Inventory - Opening Inventory
Cost of December Purchases
Particulars	Amount
Cost of Goods Sold in December (WN-1)	235,200
Add: Closing Inventory as on December (WN-2)	159,120
Less : Opening Inventory as on December (Closing Inventory of November) (WN-2)	-211,680
Cost of December Purchases	182,640
WN-1 - Calculation of Cost of Goods Sold
Particulars	November	December	January
Sales	254,000	294,000	221,000
Cost of Goods Sold is 80 % of Sales	203,200	235,200	176,800
WN-2 - Calculation Closing Inventory
Particulars	November	December
Closing Inventory is 90% of Next Month of Cost of Goods Sold	211,680	159,120
	( 90% of 235,200)	( 90% of 176,800)
	( 90 % of Dec COGS)	( 90 % of Jan COGS)