Retail outlets purchase winter coats from ZYX, Inc., throughout the year. Howeve
ID: 2717672 • Letter: R
Question
Retail outlets purchase winter coats from ZYX, Inc., throughout the year. However, in anticipating of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when coats are ordered. Invoices are payable within 60 days. From past experience, ZYX's accountant projects 28% of invoices will be paid in the month invoiced, 52% will be paid in the following month, 19% of invoices will be paid two months after the month of invoice. The average selling price per coat is $450.
To meet demand, ZYX increases production from April through July, because the coats are manufactured a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production for inventory, and no materials are purchased for inventory.
Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $8 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied. ZYX, Inc., also incurs fixed manufacturing overhead costs of $6,000 per month and fixed nonmanufacturing overhead costs of $4,000 per month.
Projected Sales 2015
May 80 units
August 100 units
November 80 units
June 120 units
September 70 units
December 50 units
July 200 units
October 70 units
Direct Materials and Direct Manufacturing Labor Utilization and Cost
Units per coat
Price per unit
Unit
Cashmere & wool
3
$23
pound
Silk lining
3
$8
yard
Buttons
5
$3
button
Direct manufacturing labor
5
$25
hour
ZYX's balance sheet as of May 1, 2015 is given below:
ZYX
Balance Sheet
May 1, 2015*
Assets
Cash
$36,705
Accounts receivable
15,660
Allowance for Doubtful Accounts
(4,050)
Inventory
28,170
Equipments
47,000
Accumulated depreciation
(4,700)
Total assets
$118,785
Liabilities and Stockholders' Equity
Accounts payable
$8,640
Note payable
35,000
Common stock
50,000
Retained earnings
25,145
Total liabilities and stockholders' equity
$118,785
ZYX' fiscal year ends on April 30.
On May 1, 2015, ZYX borrowed $35,000 on a 6% 6-months note with interest payable monthly. Using the information provided, you will need to determine whether ZYX will be in a position to 1) pay off this short-term debt on November 1, 2015; 2) purchase $10,000 new equipment in November; 3) pay $5,000 cash dividends to its shareholders.
Assume ZYX did not borrow $35,000 on May 1, 2015, and the following three situations for May 2015 sales revenues
a) might be 5% less;
b) 10% less,
c) costs might be 8% higher (independently for each situation).
Under each of those three scenarios show the total net cash for May and the amount ZYX would have to borrow if cash receipts are less than cash payments if ZYX is interested in maintaining cash balance of $10,000.
Projected Sales 2015
May 80 units
August 100 units
November 80 units
June 120 units
September 70 units
December 50 units
July 200 units
October 70 units
Explanation / Answer
Answer:
1) ZYX will have a cash balance of $ 69,285 on 01.1.2015. Hence, it can meet the commitments of $ 51050 comprising of $10000 for equipment + $ 5000 for cash dividends + $ 35000 for repayment of the note + $ 1050 interest on the note.
This can be seen from the Cash Budget for the period prepared below:
CASH BUDGET MAY JUNE JULY AUG SEP OCT NOV INFLOWS Receipt from debtors 21690 33840 60120 69660 49320 33750 32445 Borrowings - Note 21690 33840 60120 69660 49320 33750 32445 OUTFLOWS Payment for purchases 8640 8640 12960 21600 10800 7560 7560 Direct manufacturing labour 15000 25000 12500 8750 8750 10000 6250 Variable mfg OH 4800 8000 4000 2800 2800 3200 2000 Mfg OH 6000 6000 6000 6000 6000 6000 6000 Other OH 4000 4000 4000 4000 4000 4000 4000 38440 51640 39460 43150 32350 30760 25810 Excess/Deficit for the month -16750 -17800 20660 26510 16970 2990 6635 Opening Balance 36705 19955 2155 22815 49325 66295 69285 Closing Balance 19955 2155 22815 49325 66295 69285 75920 Other Workings SALES AND COLLECTION may june july aug sept oct nov dec Sales in Units 80 120 200 100 70 70 80 50 Sales in $ @ 450 per unit 36000 54000 90000 45000 31500 31500 36000 22500 Receipts from debtors Sales of may 10080 18720 6840 june 15120 28080 10260 july 25200 46800 17100 aug 12600 23400 8550 sept 8820 16380 5985 oct 8820 16380 5985 nov 10080 18720 6840 dec 6300 11700 4275 10080 33840 60120 69660 49320 33750 32445 31005 18540 Op receivables (march/april) 11610 21690 33840 60120 69660 49320 33750 32445 31005 18540 PRODUCTION SCHEDULE apr may june july aug sept oct nov dec units to be produced 80 120 200 100 70 70 80 50 PURCHASE BUDGET Cashmere & Wool - Units 240 360 600 300 210 210 240 150 Silk lining - Units 240 360 600 300 210 210 240 150 Buttons -Units 400 600 1000 500 350 350 400 250 Purchase cost - $ Cashmere & Wool 5520 8280 13800 6900 4830 4830 5520 3450 Silk lining 1920 2880 4800 2400 1680 1680 1920 1200 Buttons 1200 1800 3000 1500 1050 1050 1200 750 8640 12960 21600 10800 7560 7560 8640 5400 Payment for purchases 8640 12960 21600 10800 7560 7560 8640 5400Related Questions
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