Chapter 04 Textbook Problems

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Joliet Junior College *

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Finance

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Feb 20, 2024

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Chapter 4 Problems 8) Central Networks Central Networks had sales of 3,000 units at $50 per unit last year. The marketing manager projects a 20 percent increase in unit-volume sales this year with a 10 percent increase in price. Returned merchandise will represent 6 percent of total sales. What is your net dollar sales projection for this year? 9) All Metal Bearings All Metal Bearings had sales of 10,000 units at $20 per unit last year. The marketing manager projects a 30 percent increase in unit-volume sales this year with a 5 percent price decrease (due to a price reduction by a competitor). Returned merchandise will represent 3 percent of total sales. What is your net dollar sales projection for this year? 10) Ross Pro’s Sports Equipment Sales for Ross Pro’s Sports Equipment are expected to be 4,800 units for October. The company likes to maintain 10 percent of unit sales for each month in ending inventory (that is, end of October). Beginning inventory for October is 300 units. How many units should the firm produce for the coming month? 11) Digitex, Inc. Digitex Inc. had sales of 6,000 units in March. A 50 percent increase is expected in April. The company will maintain 5 percent of expected unit sales for April in ending inventory. Beginning inventory for April was equal to 200 units. How many units should the company produce in April? 12) Hoover Electronics Hoover Electronics has beginning inventory of 22,000 units, will sell 60,000 units for the month, and desires to reduce ending inventory to 30 percent of beginning inventory. How many units should Hoover produce?

23) Ed’s Waterbeds has made the following sales projections for the next six months. All sales are credit sales. March $12,000 June $14,000 April 16,000 July 17,000 May 10,000 August 18,000 Sales in January and February were $13,500 and $13,000 respectively. Experience has shown that 10 percent of total sales 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. a. Prepare a monthly cash receipts schedule for the firm for March through August. Ed’s Waterbeds Cash Receipts Schedule January February March April May June July August Sales $13,500 $13,000 $12,000 $16,000 $10,000 $14,000 $17,000 $18,000 Collections(30% of current sales) Collections(40% of prior month's sales) Collections(20% of sales 2 months earlier) Total cash receipts Of the sales expected to be made during the six months from March to August, how much will still be uncollected at the end of August? How much of this is expected to be collected later?

24) The Prince Albert Corporation has forecast the following sales for the first seven months of the year. January $ 10,000 May $ 10,000 February 12,000 June 16,000 March 14,000 July 18,000 April 20,000 Monthly material purchases are set equal to 30 percent of forecasted sales for the next month. Of the total material costs, 40 percent are paid in the month of purchase and 60 percent are paid in the following month. Labour costs will run $4,000 per month, and fixed overhead is $2,000 per month. Interest payments on the debt will be $3,000 for both March and June. Finally, the Prince Albert salespeople will receive a 1.5 percent commission on total sales for the first six months of the year, to be paid on June 30. Using the table on the following page, prepare a monthly summary of cash payments for the six months from January through June. (Note: Compute prior December purchases to help get total material payments for January.)

Prince Albert Corporation Cash Payment Schedule Dec. Jan. Feb. March April May June July Sales (only used to determine purchases) Purchases (30% of next month's sales) Payment (40% of current purchases) Payment (60% of prior month's purchases) Total payment for materials Labour costs Fixed overhead Interest payments Sales commission (1.5% of $82,000) Total payments

29) Jim Daniels Health Products Jim Daniels Health Products has eight stores. The firm wants to expand by two more stores and needs a bank loan to do this. Mr. Hewitt, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. Following are actual and forecasted sales figures: Actual Forecast Additional Information Novembe r $ 200,000 January $ 280,000 April forecast $330,000 Decembe r 220,000 February 320,000 March 340,000 Of the firm’s sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 30 percent are paid in the month after sale and 70 percent are paid in the second month after the sale. Materials cost 30 percent of sales and are purchased and received each month in an amount sufficient to cover the current month’s expected sales. Materials are paid for in the month they are received. Labour expense is 40 percent of sales and is paid in the month of sales. Selling and administrative expense is 5 percent of sales and is also paid in the month of sales. Overhead is $28,000 in cash per month; amortization expense is $10,000 per month. Taxes of $8,000 will be paid in January and dividends of $2,000 will be paid in March. Cash at the beginning of January is $80,000 and the minimum desired cash balance is $75,000 . Using the tables on the following pages, prepare the cash receipts schedule, the cash payments schedule, and the cash budget.

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