Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

• Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.
• Collections are expected to be 65% in the month of sale and 35% 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 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 $21,100.
• Monthly depreciation is $21,000.
• Ignore taxes.

The difference between cash receipts and cash disbursements for December would be:

Multiple Choice

• $46,600
• $13,700
• $38,700

  Correct
• $19,200

Explanation

Cash collections for December:

November credit sales collected in December ($290,000 × 35%)		101,500
December credit sales collected in December ($310,000 × 65%)	$	201,500
Total cash collections in December	$	303,000

Cash disbursements for merchandise in December:

	November			December			January
Sales	$	290,000		$	310,000		$	210,000
Budgeted cost of goods sold (80% of sales)	$	232,000		$	248,000		$	168,000
Add desired ending merchandise inventory (70% of next month’s cost of goods sold)		173,600			117,600
Total needs		405,600			365,600
Less beginning merchandise inventory		162,400			173,600
Required purchases	$	243,200		$	192,000

The company pays for its purchases in the month following purchase, so the cash disbursements in December would equal the November purchases of $243,200.

Total cash disbursements in December:

	December
Cash disbursements for merchandise	$	243,200
Other monthly expenses paid in cash		21,100
Total cash disbursements	$	264,300

Cash receipts	$	303,000
Less cash disbursements		264,300
Cash receipts less cash disbursements	$	38,700

Thanks