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Chapter 3: Q10BP (page 221)
Mervyn鈥檚 Fine Fashions has an average collection period of 50 days. The accounts receivable balance is $95,000. What is the value of its credit sales?
The value of credit sales is $684,000.
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Bombs Away Video Games Corporation has forecasted the following monthly sales:
January | \(100,000 |
February | \)93,000 |
March | \(25,000 |
April | \)25,000 |
May | \(20,000 |
June | \)35,000 |
July | \(45,000 |
August | \)45,000 |
September | \(55,000 |
October | \)85,000 |
November | \(105,000 |
December | \)123,000 |
Total annual sales | \(756,000 |
Bombs Away Video Games sells the popular Strafe and Capture video games. It sells for \)5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month鈥檚 production is equal to annual sales (in units) divided by 12.
Of each month鈥檚 sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.
a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 25,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)
Eastern Auto Parts Inc. has 15 percent of its sales paid for in cash and 85 percent on credit. All credit accounts are collected in the following month. Assume the following sales:
January | \(65,000 |
February | \)55,000 |
March | \(100,000 |
April | \)45,000 |
Sales in December of the prior year were $75,000. Prepare a cash receipts schedule for January through April.
Discuss the relative volatility of short- and long-term interest rates
Bombs Away Video Games Corporation has forecasted the following monthly sales:
January | \(100,000 |
February | \)93,000 |
March | \(25,000 |
April | \)25,000 |
May | \(20,000 |
June | \)35,000 |
July | \(45,000 |
August | \)45,000 |
September | \(55,000 |
October | \)85,000 |
November | \(105,000 |
December | \)123,000 |
Total annual sales | \(756,000 |
Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month鈥檚 production is equal to annual sales (in units) divided by 12.
Of each month鈥檚 sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.
b. Prepare a monthly schedule of cash receipts. Sales in the December before the planning year are \)100,000. Work part b using dollars.
Biochemical Corp. requires $550,000 in financing over the next three years. The firm can borrow the funds for three years at 10.60 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 8.75 percent interest in the first year, 13.25 percent interest in the second year, and 10.15 percent interest in the third year. Determine the total interest cost under each plan. Which plan is less costly?
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