AM is a trading
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AM is a trading entity. Purchases are on credit, with 70% paid in the month following the date of
purchase and 30% paid in the month after that.
Sales are partly on credit and partly for cash. Customers who receive credit are given 30 days to
pay. On average 60% pay within30 days, 30% pay between 30 and 60 days and 5% pay between
60 and 90 days. The balance is written off as irrecoverable. Other overheads, including salaries,
are paid within the month incurred.
AM plan to purchase new equipment at the end of June 2015, the expected cost of which is
P250,000. The equipment will be purchases on 30 days credit, payable at the end of July.
The cash balance on 1 May 2015 is P96,000.
The actual/budgeted figures for the six month to July 2015 were:
ACTUAL | BUDGETED | |||||
FEB P000 | MARCH P000 | APRIL P000 | MAY P000 | JUNE P000 | JULY P000 | |
Credit sales | 100 | 100 | 110 | 110 | 120 | 120 |
Cash sales | 30 | 30 | 35 | 35 | 40 | 40 |
Credit Purchases | 45 | 50 | 50 | 55 | 55 | 60 |
other overhead expenses | 40 | 40 | 40 | 50 | 50 | 50 |
Required:
a. Prepare a monthly
b. Assess the likelihood of AM being able to pay for the equipment when it falls due.
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- All Temps has a policy of always paying within the discount period, and each of its suppliers provides a discount of 2% if paid within 10 days of purchase. Because of the purchase policy, 80% of its payments are made in the month of purchase and 20% are made the following month. The direct materials budget provides for purchases of $23,812 in February, $23,127 in March, $21,836 in April, and $28,173 in May.What is the balance in accounts payable for April 30, and May 31?Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of 25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is 1,100 per year. In addition to the salaries, Elliott spends 27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Classify the resources associated with purchasing as (1) flexible or (2) committed. 2. Compute the total activity availability, and break this into activity usage and unused activity. 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. 4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?Del Spencer is the owner and founder of Del Spencers Mens Clothing Store. Del Spencers has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern: 15 percent of credit sales are paid in the month of sale. 65 percent of credit sales are paid in the first month following the sale. 14 percent of credit sales are paid in the second month following the sale. 6 percent of credit sales are never collected. Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge. Del Spencers has developed the following sales forecast: Required: Prepare a schedule of cash receipts for August and September.
- Halifax Shoes has 30% of its sales in cash and the remainder on credit. Of the credit sales, 65% is collected in the month of sale, 25% is collected the month after the sale, and 5% is collected the second month after the sale. How much cash will be collected in August if sales are estimated as $75,000 in June, $65,000 in July, and $90,000 in August?Earthies Shoes has 55% of its sales in cash and the remainder on credit. Of the credit sales, 70% is collected in the month of sale, 15% is collected the month after the sale, and 10% is collected the second month after the sale. How much cash will be collected in June if sales are estimated as $75,000 in April, $65,000 in May, and $90,000 in June?Campbell Company, which sells electric razors, had $360,000 of cost of goods sold during the month of June. The company projects a 9 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $30,000, and the desired ending inventory balance for July is $31,000. Widden pays cash to settle 75 percent of its purchases on account during the month of purchase and pays the remaining 25 percent in the month following the purchase. The accounts payable balance as of June 30 was $32,000. A. Determine the amount of purchases budgeted for July?B. Determine the amount of cash payments budgeted for inventory purchases in July?
- The Professional Service Company expects 80% of sales for cash and 20% on credit. The company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected (that is, they are "bad debts"). Expected sales for June, July, and August are $60,000, $66,000, and $56,000, respectively. What are the company's expected total cash receipts in August?Average raw material in stock is for one month. Average material in work in progress is for half month. Credit allowed by suppliers is one month. Debtors are allowed credit of one month. Average time lag in payment of wages is 1 month. Average time lag in payment of overheads is 1 month, 25 percent of the sales are on credit basis. Cash balance is expected to be Rs. 1,00,000. Finished goods lie in the warehouse for one month. Production is carried on evenly throughout the year and wages and overhead accrue similarly. Debtors are to be valued at cost of sales. Prepare a statement of working capital needed to finance a level of activity of 50,000 units of output. The cost sheet of PQR Ltd is given below. Particulars Cost per unit Rs. Raw material 40 Direct labour 20 Overhead 30 Total cost 90 Profit 10 Selling price 100Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: Sales are budgeted at $160,000 for December and $130,000 for January, terms 1/eom, n/60. Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sale. Bad debts expense is included as part of operating expenses. Gross margin is 30% of gross sales. All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale. Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase. Other monthly operating expenses to be paid in cash total $12,800. Annual depreciation is $126,000, one-twelfth…
- Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: Sales are budgeted at $160,000 for December and $130,000 for January, terms 1/eom, n/60. Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sale. Bad debts expense is included as part of operating expenses. Gross margin is 30% of gross sales. All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale. Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase. Other monthly operating expenses to be paid in cash total $12,800. Annual depreciation is $126,000, one-twelfth…Paper Corporation expects to have the sales and expenses shown for August, September,andOctober. The company expects to receive 55% of collections for sales in the month the saleoccurs, 35% in the following month, and the remainder to be uncollectible. The companypolicy for manufacturing expenses requires that 70% of the expenses be paid in the monthincurred and 30% in the following month. All other expenses are paid in the month incurred.The company also earns and collects $5,000 of rental revenue eachmonth. At the end of thequarter, Paper Corporation must make an estimated tax payment, which the companyestimates will be 7% of the quarter’s total sales. Prepare the cash budget for the three monthsif cash as of August 1, 2015, totaled $51,500. The company requires a $50,000 minimum cashbalance. July August September October Sales $34,000 $39,000 $46,000 $40,000 Manufacturing costs 15,200 16,800 20,100 19,900 Selling expenses 10,000 10,200 14,500 16,500 Administrative…Goldberg Company is a retail sporting goods store that uses an accrual accounting system. Facts regarding its operations follow: Sales are budgeted at $250,000 for December and $225,000 for January, terms 1/eom, n/60. Collections are expected to be 50% in the month of sale and 48% in the month following the sale. Two percent of sales are expected to be uncollectible and recorded in an allowance account at the end of the month of sale. Bad debts expense is included as part of operating expenses. Gross margin is 30% of gross sales. All accounts receivable are from credit sales. Bad debts are written off against the allowance account at the end of the month following the month of sale. Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the end of each month. Payment for merchandise is made in the month following the month of purchase. Other monthly operating expenses to be paid in cash total $25,000. Annual depreciation is $216,000, one-twelfth…