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Esquire Products Inc. expects the following monthly sales:

January

\(28,000

February

\)19,000

March

\(12,000

April

\)14,000

May

\(8,000

June

\)6,000

July

\(22,000

August

\)26,000

September

\(29,000

October

\)34,000

November

\(42,000

December

\)24,000

Total annual sales

\(264,000

Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

b. Determine a cash receipts schedule for January through December. Assume that dollar sales in the prior December were \)20,000. Work part b using dollars.

Short Answer

Expert verified

The cash received in January is $23,200 and in December is $34,800.

Step by step solution

01

Formula used for calculating the monthly cash receipts

MonthlyCashreceipts=40%×Presentmonthsales+60%×Priormonthssales

02

Cash receipts schedule

Month

January

February

March

April

May

June

Sales

$28,000

$19,000

$12,000

$14,000

$8,000

$6,000

40% cash sales

$11,200

$7,600

$4,800

$5,600

$3,200

$2,400

60% prior month sales

$12,000

$16,800

$11,400

$7,200

$8,400

$4,800

Total cash receipts

$23,200

$24,400

$16,200

$12,800

$11,600

$7,200

Month

July

August

September

October

November

December

Sales

$22,000

$26,000

$29,000

$34,000

$42,000

$24,000

40% cash sales

$8,800

$10,400

$11,600

$13,600

$16,800

$9,600

60% prior month sales

$3,600

$13,200

$15,600

$17,400

$20,400

$25,200

Total cash receipts

$12,400

$23,600

$27,200

$31,000

$37,200

$34,800

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Most popular questions from this chapter

Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.

a. If Neon Light Company has \(2.25 million per day in collections and \)1.05 million per day in disbursements, how many dollars will the cash management system free up?

b. If Neon Light Company can earn 6 percent per annum on freed-up funds, how much will the income be?

c. If the total cost of the new system is $400,000, should it be implemented?

Bambino Sporting Goods makes baseball gloves that are very popular in the spring and early summer season. Units sold are anticipated as follows:

March

3,250

April

7,250

May

11,500

June

9,500

Total units

31,500

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. The production manager thinks the preceding assumption is too optimistic and decides to go with level production to avoid being out of merchandise. He will produce the 31,500 units over four months at a level of 7,875 per month.

a. What is the ending inventory at the end of each month? Compare the unit sales to the units produced and keep a running total.

b. If the inventory costs $12 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 0.01 as the monthly rate.)

Esquire Products Inc. expects the following monthly sales:

January

\(28,000

February

\)19,000

March

\(12,000

April

\)14,000

May

\(8,000

June

\)6,000

July

\(22,000

August

\)26,000

September

\(29,000

October

\)34,000

November

\(42,000

December

\)24,000

Total annual sales

\(264,000

Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for \)2 each and produces them for \(1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

d. Construct a cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is \)3,000, which is also the minimum desired.

Briefly discuss three types of lender control used in inventory financing.

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.

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