Question

1.Galehouse Gas Stations Inc. expects sales to increase from $1,750,000 to $1,950,000 next year. Galehouse believes that net assets (Assets − Liabilities) will represent 80 percent of sales. His firm has an 12 percent return on sales and pays 40 percent of profits out as dividends.

  

a. What effect will this growth have on funds?

The cash balance will (increase by or decrease by) ___#__.

2.Bronco Truck Parts expects to sell the following number of units at the prices indicated under three different scenarios in the economy. The probability of each outcome is indicated.

Outcome Probability Units Price

A 0.30 490 $25

B 0.30 88     $33

C 0.40 1,190 $38

What is the expected value of the total sales projection?

3.Sales for Ross Pro’s Sports Equipment are expected to be 47,000 units for the coming month. The company likes to maintain 15 percent of unit sales for each month in ending inventory. Beginning inventory is 12,000 units.

How many units should the firm produce for the coming month?

4.Vitale Hair Spray had sales of 21,000 units in March. A 50 percent increase is expected in April. The company will maintain 20 percent of expected unit sales for April in ending inventory. Beginning inventory for April was 1,050 units.

How many units should the company produce in April?

5.At the end of January, Higgins Data Systems had an inventory of 680 units, which cost $12 per unit to produce. During February the company produced 1,010 units at a cost of $15 per unit.

If the firm sold 1,180 units in February, what was its cost of goods sold? (Assume LIFO inventory accounting.)

6. The Bradley Corporation produces a product with the following costs as of July 1, 20X1:

Material    $5 per unit

Labor 3 per unit

Overhead 1 per unit

Beginning inventory at these costs on July 1 was 3,450 units. From July 1 to December 1, 20X1, Bradley Corporation produced 12,900 units. These units had a material cost of $4, labor of $6, and overhead of $3 per unit. Bradley uses LIFO inventory accounting.

a. Assuming that Bradley Corporation sold 14,800 units during the last six months of the year at $18 each, what is its gross profit?

b. What is the value of ending inventory?

7.J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year:

September (actual)   $57,000

Fourth Quarter

October $47,000

November   $42,000

December $67,000

Experience has shown that 15 percent of sales are collected in the month of sale, 70 percent are collected in the following month, and 15 percent are never collected.

Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December):

J. Lo’s Clothiers

Sept Oct Nov Dec

a. Credit sales

In month of sales

One month after sales

Total cash receipts

8. Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:

March $25,000

April $27,000

May $24,500

June $23,000

Wright maintains an ending inventory for each month in the amount of two and one-half times the expected sales in the following month. The ending inventory for February (March’s beginning inventory) reflects this policy. Materials cost $7 per unit and are paid for in the month after production. Labor cost is $11 per unit and is paid for in the month incurred. Fixed overhead is $21,500 per month. Dividends of $21,900 are to be paid in May. The firm produced 24,000 units in February.

Complete a production schedule and a summary of cash payments for March, April, and May. Remember that production in any one month is equal to sales plus desired ending inventory minus beginning inventory.

Wright Lighting Fixtures

Production Schedule

March April May June

a. Projected unit sales

b. Desired ending inventory

c. Total units required

d. Beginning inventory e. Units to be produced

Cash Payments

February March April May

a. Units produced

b. Material cost

c. Labor cost

d. Fixed overhead

e. Dividends

f. Total Cash Payments

Answer 1