(Example 4-7) Subways constructing a five-year plan. The firm\'s ACP is currentl

Question

(Example 4-7) Subways constructing a five-year plan. The firm's ACP is currently 90 days, while its inventory turnover ratio is 3x based on COGS. The company has forecast aggressiverevenue growth along with efficiencyimprovements in manufacturing and credit and collections as follows: 3· (Year 0 is the current year.) Year 5- $ 50,000 $ 60,000 $ 70,000 $ 80,000 $90,000 +' $ 100,000 fI Revenue Cost Ratio ACP (days) Inventory Turnover? 58960 700 55%. 40+ 60%. 57% 60 56960 50 59% 90 80P 54 60 For each planned year: + a. Calculate the COGS. b. Calculate the A/R balance at year-end+ c. Calculate the inventory balance at year-end. a- 1 Cost of Goods Sold- | bAccounts Receivabl C Inventory

Explanation / Answer

a)COGS = Sales revenue * cost ratio

b)ACP = 365*Average accounts receivable/sales revenue

0 year= 90 = 365*X/50,000

X= closing accounts receivable= 90*50000/365= $12328.77(in 0 year since there is no opening accounts receivable,average receivable is = closing accounts receivable

[2*13150.68}-12328.77

=$13,972.59

[2*13424.66]-13972.59

=$12,876.73

[2*13150.68]-12876.73

=$13,424.64

[2*12328.77]-13424.64

=$11,232.90

[2*10958.90]-11232.90

=$10684.91

*Accounts receivable at end = (2*Average accounts receivable) - opening accounts receivable.

*closing receivable of previous year become opening receivable of current year.

c)Average inventory = COGS/ Inventory turnover ratio

   o year = since in 0 year there will be no opening inventory so average inventorywill be equal to closing inventory     = 30000/2

                                     = $ 15 ,000

Closing inventory = [ 2* average inventory ]- opening

                      

                  

[2*11800]-15000

=$8600

[2*10150]-8600

=$11,700

[2*9120]-11700

=$6,540

{2*8400]-6540

=$10,260

[2*7857.14]-10260

=$5454.28

Particulars 0 1 2 3 4 5 COGS 50,000*60% = $ 30,000 60,000*59%= 35,400 70,000*58%=40,600 80,000*57%=45,600 90000*56%=50,400 100000*55%= 55,000

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.