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Questions 1. Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, ad shown in the...

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•• Questions 1. Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, ad shown in the company’s sales budget for the second quarter given below : From past experience, the company has learned that 20% of month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000. Required: 1: Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. 2: Assume that the company will prepare a budgeted balance sheet as of June 30. Compare the accounts receivable as of that date. 2. Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company is now planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements: (a) The finished goods inventory on hand at the end of each month must be equal to 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 10,000 units (b) The raw materials inventory on hand at the end of each month must be equal to one-half of following month’s production needs for raw materials. The raw materials inventory of June 30 is budgeted to be 54,000 cc of solvent H300. (c) The company maintains no work in process inventories. A sales budget for the Supermix for the last six months of the year follows Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. 2. Examine the production budget that you prepared in (1) above. Why will the company produce more units than it sells in July and August, and fewer units than it sells in September and October? 3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August and September, and for the quarter in total.
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3. You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations: a. The cash balance on December 1 is $40,000. b. Actual sales for October and November and expected sales for December are as follows: October Novembe r De ce mb er Cash sales . . . . . . . . . . . . . $65,000 $70,000 $8 3,0 00 Sales on account . . . . . . . . $400,00 0 $525,000 $6 00, 00 0 Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible. c. Purchases of inventory will total $280,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $161,000, all of which will be paid in December. d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation. e. A new Web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month. f. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to bolster the cash position as needed. Required: 1. Prepare a schedule of expected cash collections for December. 2. Prepare a schedule of expected cash disbursements for merchandise purchases for December. 3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month. 4. Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $12,000,000 $14,000,000 $25,000,000 Average operating assets $3,000,000 $7,000,000 $5,000,000 Net operating income $600,000 $560,000 $800,000 Minimum required rate of return 14% 10% 16% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept opportunity?
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