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 $303,000 for November, $323,000 for December, and $223,000 for January. • Collections are expected to be 70% in the month of sale and 30% in the month following the sale. • The cost of goods sold is 75% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 80% 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 $22,400. • Monthly depreciation is $27,500. • Ignore taxes. $ Balance Sheet October 31 Assets Cash Accounts receivable Merchandise inventory Property, plant and equipment, net of $624, 000 accumulated depreciation Total assets 33,000 83,500 181, 800 918, 000 $1,216,300 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity $ 252,000 753,000 211, 300 $1,216, 300 Retained earnings at the end of December would be:

Answer 1

1) Calculate retained earning December 31

Sales (303000+323000)	626000
Cost of goods sold	469500
Gross profit	156500
Operating expense (22400+27500)*2	99800
Net income	56700

Retained earnings December 31 = 211300+56700 = 268000

2) Total Cost of purchase in August

	August
Production unit	23600
Raw material per unit	3.5
Raw material needed for production	82600
Add: Desired ending inventory (22300*3.5*20%)	15610
Less: Beginning inventory	-11800
Purchase Unit	86410
Cost per kg	28
Total Cost of purchase	2419480