Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow: • Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January • Collections are expected to be 90% in the month of sale and 10% in the month following the sale. • The cost of goods sold is 75% of sales. • The company desires to have an ending merchandise inventory equal to 60% of the following 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 $24,700. • Monthly depreciation is $16,000. • Ignore taxes.

Answer 1

	November	December
Sales	350000	320000
Less: Cost of goods sold	262500	240000
Gross margin	87500	80000
Less: Monthly expenses	24700	24700
Less: Monthly Depreciation	16000	16000
Net income	46800	39300
Retained earnings at the end of October 31	203500
Add: Net income for November	46800
Add: Net income for December	39300
Retained earnings at the end of December	289600
Option B $289,600 is correct