Problem: Bulltuff Stock Trailers, Inc 1. In the last four months Hal has checks

Question

Problem: Bulltuff Stock Trailers, Inc 1. In the last four months Hal has checks written to supplier that were refused by the bank because of nonsufficient funds. His main supplier Alcoa Aluminum Supply Co, has cut off credit. He can't understand why his checks keep bouncing. Cash sales are 10% of total sales Credit card sales are 10 percent of total sales and are collected the week following the sale. The credit card provider deducts 2.5 percent of the gross amount of each credit card sale. . Sales on account are 80 percent of all sales. All credit sales are to dealers. Terms for dealers are "30", "30", "30." Payments are due by the 10th of the month. Direct materials, primarily aluminum, are 60% of the cost of building a trailer. Hal must pay cash on delivery Total cost of direct labor is 15% of the cost of building a trailer. Variable costs combined (materials and labor) are 50% of gross sales. All other costs combined are treated as fixed costs, and total $1 million per year. Bulltuff leases his building and equipment and has no depreciation. . Projected Sales for the year $5,000.00 Sales for the first four months of the year have been: . · . Jan- $208,000 Feb $261,000 Mar-$293,000 April -$328,000 1. What is causing Hal's cash flow problems? 2 According to the case, Bulltuff Stock Trailers has sales of $208,000 in January a. How much cash did the company collect from those sales in January: How much cash did the company collect from the January sales in February:- b. (Hint: See items #1,2,3) 3·Assuming that Bulltuff has a Gross Margin of 75%, determine how much and when the npany had to pay for the $208,000 of sales in January:

Explanation / Answer

Answer 1:

The following are causing cash flow problems to Hal:

Answer 2:

Part a:

Sales in January

208000

Particulars

Amount ($)

Amount ($)

Cash sales @10%

20800

Credit card sales @10%

20800

Less: Deduction of 2.5%

520

20280

Cash collected from the sales of January in January

41080

Part b:

Sales in January

208000

Particulars

Amount ($)

Sales in accounts @80%

166400

1/3 shall be collected after 30 days (166400 /3)

55466.67

Note: The credit term is “30”, “30”, “30”.

Answer 3:

Sales in January

208000

Particulars

Amount ($)

Gross margin @75%

156000

Cost of goods sold (208000 - 156000)

52000

Thus, the amount of $52,000 will have to be paid in January as the direct materials have to be paid immediately after the delivery and it has been assumed that the employees will also have to be paid immediately. .         

Answer 4:

The three main problems causing the cash problems to Hal’s are as following:

Two actions to address the problems:

Sales in January

208000

Particulars

Amount ($)

Amount ($)

Cash sales @10%

20800

Credit card sales @10%

20800

Less: Deduction of 2.5%

520

20280

Cash collected from the sales of January in January

41080

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