In: Accounting
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:
Required:
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:
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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