Texas Rose Company
Assignment – completely answer the following questions: 1. Tyler’s total sales forecast for the nursery’s first full year of operations is 228,000 plants at an average sales price of $5 per plant. As a first approximation, assume that 30 percent of the firm’s customers will pay 10 days after the sale, 55 percent will pay on the 30th day, and 15 percent will pay on the 60th day. a) What is the firm’s projected days sales outstanding (DSO)? b) What is the projected average daily sales? (Use a 360-day year.) c) What is Texas Rose’s projected average receivables level? d) If Tyler is estimating a gross profit margin, or contribution margin, of 40 percent, how much of the receivables balance must actually…show more content… The profit margin and the interest rate affect the dollar cost of receivable.
3. Refer to the monthly sales forecasts given in the first Table. Assume that these amounts are realized and that the firm’s customers pay exactly as predicted. a) What would the receivables level be at the end of March and at the end of June? b) What is the firm’s forecasted average daily sales for the first three months of operations? For the entire half-year? c) What is the implied DSO at the end of March? At the end of June? What is the relationship between the DSO and the average collection period? d) Does the DSO indicate that the firm’s customers have changed their payment behavior from the first to second quarter? Is DSO a good management tool in this situation? If not, why not? a. | Sales | 10days | 30days | 60days | Jan | 40000 | 12000 | 22000 | 6000 | Feb | 100000 | 30000 | 55000 | 15000 | Mar | 160000 | 48000 | 88000 | 24000 | Apr | 240000 | 72000 | 132000 | 36000 | May | 180000 | 54000 | 99000 | 27000 | June | 120000 | 36000 | 66000 | 18000 |
The receivable level at end of March= 88000+15000+24000=127000
The receivable level at end of June=66000+27000+18000=111000
c. At the end of March DSO=127000/3333=38.1
At the end of June