Question

TB MC Qu. 8-119 Bramble Corporation is a small wholesaler ...

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

• Sales are budgeted at $410,000 for November, $390,000 for December, and $380,000 for January.
• Collections are expected to be 50% in the month of sale and 50% 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 $24,700.
• Monthly depreciation is $15,700.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	20,700
Accounts receivable		70,700
Merchandise inventory		229,600
Property, plant and equipment, net of $572,700 accumulated depreciation		1,094,700
Total assets	$	1,415,700
Liabilities and Stockholders' Equity
Accounts payable	$	254,700
Common stock		820,700
Retained earnings		340,300
Total liabilities and stockholders' equity	$	1,415,700

The cost of December merchandise purchases would be:

Multiple Choice

• $312,000

• $306,400

• $212,800

• $328,000

Answer 1

Answer: Option b. $ 306,400

Computation of The cost of December merchandise purchases would be:

As we know,

Cost of goods sold = Beginning Inventory + Purchases - Ending Inventory

Thus,

Purchases = Cost of goods sold + Ending Inventory - Beginning Inventory

= $ 312,000 + $ 212,800 - $ 218,400

= $ 306,400

Thus, Cost of December merchandise purchases is $ 306,400

Working note:

1. Cost of goods sold for December :

The cost of goods sold is 80% of sales

Thus, Cost of goods sold for December = 80% of December sales

= 80% of $ 390,000

= $ 312,000

2. Ending Inventory for December:

Ending merchandise inventories equal to 70% of the next month's cost of goods sold

Thus, Ending Inventory for December = 70% of January month cost of goods sold

= 70% of $ 304,000

= $ 212,800

Note:

January month cost of goods sold = 80% of January sales

= 80% of $ 380,000

= $ 304,000

3. Beginning Inventory for December:

As we know, Ending inventory of November is the Beginning inventory of December.

Thus, we will compute the ending inventory of November.

Thus, Ending Inventory for November = 70% of December month cost of goods sold

= 70% of $ 312,000

= $ 218,400

Therefore, Beginning Inventory for December is $ 218,400