1. Vertical Ladder Company (VLC) forecasts that its sales for January through April will be P 60,000,...
Question:
1. Vertical Ladder Company (VLC) forecasts that its sales for January through April will be P 60,000, P 70,000, P 90,000, and P 80,000, respectively. All sales are made on credit, and past experience indicates that 30 percent of the sales will be collected in the month of the sales and the remaining 70 percent will be collected the following month. Customers who pay in the month of the sale will take 2 percent cash discount offered by VLC for paying early. VLC normally purchases and pays the raw materials, which cost 55% of the sales prices, one month prior to selling the finished products. Employees' wages represent 25 percent of the sales price, and rent is P 3,000 per month. At the beginning of February, VLC expects P 4,000 cash, which is P 1,000 greater that its target cash balance. Using the information provided, construct a cash budget for February and March.
Required: Compute the following
A. Total cash receipts for February and March.
B. Total cash disbursements for February and March
C. The net cash flows for Feb. and March
D. How much is the cash surplus (shortage) for Feb. and March?
2.Pinky's Cosmetics expects to have P30 million in credit sales during the coming year. In spite of a national distributing system, all remittances are sent to the home office. A proposed system can eliminate three days of float, releasing funds which, when invested, will earn 11%. What annual savings can Pinky's Cosmetics expect if the system is implemented? Use a 365-day year.
3.Green Seed Sales, Inc. expects to generate sales of P18 million in the coming year. All sales are done on a credit basis, net 30 days. Green has estimated that it takes an average of three days for payments to reach their central office and an additional day to process the payments. What is the opportunity cost of the funds tied up in the mail and processing? Green uses a 360-day year in all calculations and can invest free funds at 8%.
4.The Blue Company has under study a new credit policy that they believe will increase annual sales from P11 million to P14 million. However, the new plan is also expected to increase bad debt losses from P800,000 to P1.2 million each year. The average collection period on collectable sales is now averaging 90 days. This ratio will increase to 120 days for both old and new sales if this new credit policy is adopted. The increase in sales is expected to increase the company's investment in inventory by P20,000. Assuming a pre-tax required rate of return of 25% and a variable cost-to-sales ratio of 60%, should the Blue Company adopt the new credit policy? Assume a 360-day year.
5.A flower shop is trying to determine the optimal order quantity of the wicker baskets that it places many of its arrangements in. The store thinks it will sell 2,000 of these baskets over the next year. The baskets cost the shop P2.00 each. The carrying costs of the baskets are P0.15 each per year. It costs the shop P8.00 to order.
a. What is the economic order quantity?
b. What is the total cost for ordering the baskets once a year? Four times a year? Six times a year?
c. What assumptions are being made by the EOQ model?
6.A local lamp store expects to sell 2,000 lamps in the coming year. It costs the store P1.00 in carrying costs for each lamp and P10.00 for each order placed.
a. What is the economic order quantity for the lamps?
b. How many orders will be placed each year?
c. If the store wants a one-week safety stock and it takes one week to receive an order after it has been placed, what should the inventory level be when a new order is placed? Assume a 50-week year.