Chapter 3: 3DQ (page 247)
How have new banking laws influenced competition?
The new banking laws have increased the competition in the banking market.
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Oral Roberts Dental Supplies has annual sales of \(5,200,000. Ninety percent are on credit. The firm has \)559,000 in accounts receivable. Compute the value of the average collection period.
Boatler Used Cadillac Co. requires $850,000 in financing over the next two years. The firm can borrow the funds for two years at 12 percent interest per year. Mr. Boatler decides to do forecasting and predicts that if he utilizes short term financing instead, he will pay 7.75 percent interest in the first year and 13.55 percent interest in the second year. Determine the total two-year interest cost under each plan. Which plan is less costly?
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
c. If the firm likes to see its bills collected in 35 days, should it be satisfied with the average collection period?
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.
Antonio Banderos & Scarves make headwear that is very popular in the fall-winter season. Units sold are anticipated as follows:
October | 1,250 |
November | 2,250 |
December | 4,500 |
January | 3,500 |
Total units | 11,500 |
If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory build-up.
However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 11,500 items over four months at a level of 2,875 per month.
a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.
b. If the inventory costs $8 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent or the monthly rate.)
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