3 Determining cash receipts from accounts receivable LO 14-2 Laura’s Dress Deliv
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Question
3 Determining cash receipts from accounts receivable LO 14-2
Laura’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $760,000 in December. Because Laura’s Dress Delivery is in the mail-order business, all sales are made on account. The company expects a 26 percent drop in sales for January. The balance in the Accounts Receivable account on December 31 was $97,400 and is budgeted to be $71,700 as of January 31. Laura’s Dress Delivery normally collects accounts receivable in the month following the month of sale.
Determine the amount of cash Laura’s Dress Delivery expects to collect from accounts receivable during January.
EXPECTED CASH COLLECTION ( )
3 Opportunity costs LO 13-1
Justin Brimer owns his own taxi, for which he bought a $25,000 permit to operate two years ago. Mr. Brimer earns $40,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $84,000 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $35,000 a year for a 34-hour week. Driving his own taxi, Mr. Brimer works approximately 47 hours per week. If he sells his business, he will invest the $84,000 and can earn a 10 percent return.
Determine the opportunity cost of owning and operating the independent business.
OPPORTUNITY COST ( )
Calculate the earnings of Justin Brimer operating as an independent.
OPERATING AS AN INDEPENDENT ( )
Calculate the earnings of Justin Brimer working as a dispatcher.
WORK AS A DISPATCHER ( )
Based solely on financial considerations, should Mr. Brimer sell the taxi and accept the position as dispatcher? YES ( ) OR NO ( )
ACCEPT ( ) OR REJECT ( )
4 Special order decision LO 13-2
Packer Concrete Company pours concrete slabs for single-family dwellings. Wolff Construction Company, which operates outside Packer’s normal sales territory, asks Packer to pour 43 slabs for Wolff’s new development of homes. Packer has the capacity to build 330 slabs and is presently working on 140 of them. Wolff is willing to pay only $2,550 per slab. Packer estimates the cost of a typical job to include unit-level materials, $930; unit-level labor, $590; and an allocated portion of facility-level overhead, $750.
Calculate the contribution to profit from the special order.
CONTRIBUTION TO PROFIT ( )
6 Outsourcing decision affected by opportunity costs LO 13-3
Freeman Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows.
Calculate the total relevant cost. TOTAL RELEVANT COST ( )
Should Freeman continue to make the containers? YES OR NO
Freeman could lease the space it currently uses in the manufacturing process. If leasing would produce $11,200 per month, Calculate the total avoidable costs.
TOTAL AVOIDABLE COSTS ( )
7 Opportunity cost LO 13-5
Brewton Freight Company owns a truck that cost $33,000. Currently, the truck’s book value is $30,000, and its expected remaining useful life is four years. Brewton has the opportunity to purchase for $22,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $5,800 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $11,000.
KEEP OLD REPLACE WITH NEW
TOTAL RELEVANT COSTS ( ) ( )
Should Brewton replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
Laura’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $760,000 in December. Because Laura’s Dress Delivery is in the mail-order business, all sales are made on account. The company expects a 26 percent drop in sales for January. The balance in the Accounts Receivable account on December 31 was $97,400 and is budgeted to be $71,700 as of January 31. Laura’s Dress Delivery normally collects accounts receivable in the month following the month of sale.
Explanation / Answer
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