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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 game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.

Of each month’s 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.

c. Determine a cash payments schedule for January through December. The production costs of \)2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $45,000 per month.

Short Answer

Expert verified

The cash payment per month is $70,200.

Step by step solution

01

Meaning of cash payments schedule

The cash payments schedule is maintained by an organization to determine the cash payments made by it. This schedule clearly determines the different payments made by the organization and their impact on the cash flows.

02

Cash payments schedule

Month

January

February

March

April

May

June

12,600 units X $2

$25,200

$25,200

$25,200

$25,200

$25,200

$25,200

Other cash payments

$45,000

$45,000

$45,000

$45,000

$45,000

$45,000

Total cash payments

$70,200

$70,200

$70,200

$70,200

$70,200

$70,200

Month

July

August

September

October

November

December

12,600 units X $2

$25,200

$25,200

$25,200

$25,200

$25,200

$25,200

Other cash payments

$45,000

$45,000

$45,000

$45,000

$45,000

$45,000

Total cash payments

$70,200

$70,200

$70,200

$70,200

$70,200

$70,200

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Most popular questions from this chapter

Question: Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of \(6 per order, and carrying costs of \)2.40 per pipe.

b. How many orders will be placed during the year?

Explain how rapidly expanding sales can drain the cash resources of a firm.

Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has \(500,000 in fixed assets. Assume a tax rate of 40 percent.

b. Given that Guardian’s earnings before interest and taxes are \)200,000, calculate earnings after taxes for each of your alternatives.

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.)

By using long-term financing to finance part of temporary current assets, a firm may have less risk but lower returns than a firm with a normal financing plan. Explain the significance of this statement.

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