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Chapter 2: 18BP (page 81)
A firm has sales of \(3 million, and 10 percent of the sales are for cash. The year-end accounts receivable balance is \)285,000. What is the average collection period? (Use a 360-day year.)
The average collection period of the firm is 38 days.
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Watt鈥檚 Lighting Stores made the following sales projection for the next six months. All sales are credit sales.
March | \(35,000 |
April | 41,000 |
May | 30,000 |
June | 39,000 |
July | 47,000 |
August | 49,000 |
Sales in January and February were \)38,000 and $37,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected two months after sale.
Prepare a monthly cash receipts schedule for the firm for March through
August.
Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later?
The Harding Company manufactures skates. The company鈥檚 income statement for 20X1 is as follows:
HARDING COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (10,500 skates at \(60 each) | \)630,000 |
Less: variable costs (10,500 tires at \(25) | 262,500 |
Less: fixed cost | 200,000 |
Earnings before interest and taxes (EBIT) | \)167,500 |
Interest expenses | 62,500 |
Earning before taxes (EBT) | \(105,000 |
Income tax expenses (30%) | 31,500 |
Earning after taxe (EAT) | \)73,500 |
Given this income statement, compute the following:
c. Degree of combined leverage.
Owen鈥檚 Electronics has nine operating plants in seven southwestern states. Sales for last year were \(100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary
directly with sales. The firm is working at full capacity.
BALANCE SHEET (in \) million) | |||
Assets | Liabilities and Stockholder鈥檚 equity | ||
Cash | \(7 | Accounts payable | \)20 |
Accounts receivable | 25 | Accrued wages | 7 |
Inventory | 28 | Accrued taxes | 13 |
Current assets | \(60 | Current liabilities | \)40 |
Fixed assets | 45 | Notes payable | 15 |
Common stock | 20 | ||
Retained earnings | 30 | ||
Total assets | \(105 | Total liabilities and stockholder鈥檚 equity | \)105 |
Owen鈥檚 has an aftertax profit margin of 10 percent and a dividend payout
ratio of 45 percent. If sales grow by 20 percent next year, determine how many dollars of new funds are needed to finance the growth.
Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:
March | 4,000 |
April | 10,000 |
May | 8,000 |
June | 6,000 |
Wright maintains an ending inventory for each month in the amount of one and one-half times the expected sales in the following month. The ending inventory for February (March鈥檚 beginning inventory) reflects this policy. Materials cost \(7 per unit and are paid for in the month after production. Labor cost is \)3 per unit and is paid for in the month incurred. Fixed overhead is \(10,000 per month. Dividends of \)14,000 are to be paid in May. Eight thousand units were produced in February.
Complete a production schedule and a summary of cash payments for
March, April, and May. Remember that production in any one month is equal to
sales plus desired ending inventory minus beginning inventory.
Discuss the limitations of financial leverage.
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