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

• Sales are budgeted at $296,000 for November, $316,000 for December, and $230,000 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 $21,700.
• Monthly depreciation is $24,000.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	28,000
Accounts receivable		80,000
Merchandise inventory		165,760
Property, plant and equipment, net of $624,000 accumulated depreciation		1,010,000
Total assets	$	1,283,760
Liabilities and Stockholders' Equity
Accounts payable	$	242,000
Common stock		746,000
Retained earnings		295,760
Total liabilities and stockholders' equity	$	1,283,760

The cost of December merchandise purchases would be:

Multiple Choice

• $198,600

• $252,800

• $236,800

• $204,640