Question

In: Accounting

A company's history indicates that 25% of its sales are for cash and the rest are...

A company's history indicates that 25% of its sales are for cash and the rest are on credit. Collections on credit sales are 25% in the month of the sale, 40% in the next month, 20% the following month, and 15% is uncollectible. Projected sales for December, January, and February are $67,000, $92,000 and $102,000, respectively. The February expected cash receipts from all current and prior credit sales is:

A) $41,475
B) $56,775
C) $72,075
D) $18,690
E) $77,600

Southland Company is preparing a cash budget for August. The company has $17,600 cash at the beginning of August and anticipates $122,000 in cash receipts and $135,700 in cash disbursements during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow:

A) $0.
B) $10,000.
C) $6,100.
D) $7,600.
E) $27,600.

A company’s flexible budget for 19,000 units of production showed sales, $81,700; variable costs, $30,400; and fixed costs, $12,000. The variable costs expected if the company produces and sells 12,000 units is:

A) $81,700.
B) $93,700.
C) $31,200.
D) $19,200.
E) $30,400.

Expert Solution

Answer- The February expected cash receipts from all current and prior credit sales is= $56775 (Option B).

Explanation- February month cash collections = Cash receipts from prior credit sales

= ($102000*75%*25)+($67000*75%*20%)+ ($92000*75%*40%)

=$19125+$10050+27600

= $56775

Answer- To maintain the minimum cash balance of $10,000, the company must borrow = $6100 (Option C).

Explanation- To maintain the minimum cash balance of $ 10000 the company must borrow = Opening cash balance + Cash receipts-Cash disbursements – Minimum closing cash balance

= $17600+$122000-$135700-$10000

= $6100

Answer- The variable costs expected if the company produces and sells 12,000 units is = $19200 (Option D).

Explanation- Variable costs on 12000 units = Variable cost per unit* No. of units produces & sells

= $1.6 per unit*12000 units

= $19200

Where- Variable cost per unit = $30400/19000 units

= $1.6 per unit

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