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Abacus Company sells Its product for $170 per unit. Its actual and projected sales follow. All sales are on credit. Recent experience shows that 24%
Abacus Company sells Its product for $170 per unit. Its actual and projected sales follow. All sales are on credit. Recent experience shows that 24% of credit sales is collected in the month ofthe sale. 46% in the month after the sale. 25% in the second month after the sale, and 5% proves to be uncollectible The product s purchase price is $110 per unit. All purchases are payable within 12 days. Thus. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 23% of the next month's unit sales plus a safety stock of 65 units The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,656,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $84,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $84,000. the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate On May 31. the loan balance is $31,500. and the company's cash balance is $84,000
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