Question

In: Accounting

1. Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its...

1. Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales.

70 percent collected in the month of sale.

15 percent collected in the first month after sale.

10 percent collected in the second month after sale.

4 percent collected in the third month after sale.

1 percent uncollectible.

The sales on account have been budgeted for the last seven months as follows:

Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales.

70 percent collected in the month of sale.

15 percent collected in the first month after sale.

10 percent collected in the second month after sale.

4 percent collected in the third month after sale.

1 percent uncollectible.

The sales on account have been budgeted for the last seven months as follows:

June $ 130,500
July 158,000
August 183,000
September 216,000
October 241,000
November 266,000
December 228,500

Required:

  1. Compute the estimated total cash collections during October from credit sales.

  2. Compute the estimated total cash collections during the fourth quarter from sales made on account during the fourth quarter.

2. Greener Grass Fertilizer Company plans to sell 300,000 units of finished product in July and anticipates a growth rate in sales of 4 percent per month. The desired monthly ending inventory in units of finished product is 75 percent of the next month’s estimated sales. There are 225,000 finished units in inventory on June 30. Each unit of finished product requires 5 pounds of raw material at a cost of $2.15 per pound. There are 860,000 pounds of raw material in inventory on June 30.

Required:

  1. Compute the company’s total required production in units of finished product for the entire three-month period ending September 30. (Round all intermediate calculations and your final answer to the nearest unit.)

  2. Independent of your answer to requirement (1), assume the company plans to produce 720,000 units of finished product in the three-month period ending September 30, and to have raw-material inventory on hand at the end of the three-month period equal to 25 percent of the use in that period. Compute the total estimated cost of raw-material purchases for the entire three-month period ending September 30.

Solutions

Expert Solution

Solution

Requirement 1.

On the basis of available information, the cash collection statement could be chalked out as follows,

Coyote Loco, Inc.
Statement showing Estimated Cash Collection
Particulars October November December Total
Due of July $       6,320.00 $                    -   $                    -   $       6,320.00
Due of August $     18,300.00 $       7,320.00 $                    -   $     25,620.00
Due of September $     32,400.00 $     21,600.00 $       8,640.00 $     62,640.00
Due of October $ 1,68,700.00 $     36,150.00 $     24,100.00 $ 2,28,950.00
Due of November $                    -   $ 1,86,200.00 $     39,900.00 $ 2,26,100.00
Due of December $                    -   $                    -   $ 1,59,950.00 $ 1,59,950.00
TOTAL $ 2,25,720.00 $ 2,51,270.00 $ 2,32,590.00 $ 7,09,580.00

Answer 1: Estimated Collection during October = $225,720.00

Answer 2: Estimated collection during the quarter from sales made during the quarter = $709,580.00 - (62,640 - 25,620 - 6,320) = $615,000

Requirement 2.

(1) On the basis of the available information, the solution can be drawn as follows,

Greener Glass Fertilizer Company
Statement showing Estimated Production
Particulars July August September Total
Estimated Sales Units           3,00,000           3,12,000           3,24,480           9,36,480
Less: Opening Stock          -2,25,000          -2,34,000          -2,43,360          -7,02,360
Add: Closing Stock           2,34,000           2,43,360           2,53,094           7,30,454
TOTAL PRODUCTION           3,09,000           3,21,360           3,34,214           9,64,574

Note: For calculation of Closing Stock for September, (324480 x 1.04 x 75%) = 253,094

(2)
Production required = 720,000 units
Raw Material required (5 Pounds produce one unit) = 720,000 x 5 = 3,600,000
Closing Inventory = 3,600,000 * 25% = 900,000

Total Requirement = 3,600,000 + 900,000 - 860,000= 3,640,000

Therefore, Total Cost of Purchase = 3,640,000 x $2.15 = $7,826,000


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