Data

It is the end of September 2014; your data collection process has revealed the following:

1. Actual sales for August and September 2014 were 5,500 and 5,800 units (hockey sticks) respectively.

1. Sales for October, November and December 2014 are estimated to be 6,200, 6,300 and 6,550 units respectively; whereas sales for January 2015 are estimated to be 4,900 units.

1. The selling price per hockey stick is $22.

1. In August 2014, it cost $15 to buy one hockey stick from the supplier; this amount increased by % (0.5%) in September. This % cost increase per month is expected to continue until December 2014. December cost = 15.30/stick

1. As per its policy, Manning maintains ending inventory equal to 10% of the following months estimated sales.

1. Mannings cash collections (from customers) are as follows:

Month of Sale: 60% 76560 sept, 72600 aug

1^st Month Following the Sale: 30% 36300 aug, 38280 sept

2^nd Month Following the Sale: 10% 12760 sept, 12100 aug

1. Mannings cash payments (to suppliers) are as follows:

Month of Purchase: 65% 53893.125 aug, 56832.75

1^st Month Following Purchase: 35% 29019.375 aug, 30602.25

1. Mannings estimated variable selling costs are as follows:

Sales Commissions: 1.0% of sales revenues

Other Selling Costs: 1.5% of sales revenues

October: 0.025 * 136400 = 3,410

November: 0.025 * 138600 = 3,465

December: 0.025 * 144100 = 3,602.5

1. Its estimated fixed selling costs in September were:

Advertising: $ 3,000

Office Expenses: $ 5,500

Miscellaneous: $ 2,200

These monthly amounts were expected to remain the same until December. Both the variable and fixed selling costs are paid for during the month in which they are incurred.

October: $10,700

November: $10,700

December: $10,700

1. Its general administrative expenses in September were:

Compensation: $20,000

Insurance: $ 2,500

Amortization: $ 2,000

Property Taxes: $ 2,500

Miscellaneous: $ 2,700

Compensation expenses are expected to increase by 0.25% each month starting October, whereas other expenses are expected to remain steady. All general and administrative expenses, except property taxes, are paid for during the month in which they are incurred. Property taxes are paid in quarterly instalments at the end of each quarter.

October

Compensation = 0.0025 x 20,000 = 50 + 20,000 = 20,050

Insurance = 2,500

Accumulated Amortization = 2,000

Miscellaneous = 2,700

= 20,050 + 2,500 + 2,700 = 25,250

November

Compensation = 0.0050 x 20,000 = 100 + 20,000 = 20,100

Insurance = 2,500

Accumulated Amortization = 2,000

Miscellaneous = 2,700

= 20,100 + 2,500 + 2,700 = 25,300

December

Compensation = 0.0075 x 20,000 = 150 + 20,000 = 20,150

Property Taxes = 3 x 2,500 = 7,500

Insurance = 2,500

Accumulated Amortization = 2,000

Miscellaneous = 2,700

= 20,150 + 7,500 + 2,500 + 2,700 = 32,850

The amortization expense is related to a building costing $50,000 which is used specifically by administration. The amortization should be credited to the Accumulated Amortization account. Given that the construction of the administrative offices has just been completed (at the beginning of October) there had been no amortization expense prior to October.

1. The company declares and pays dividends of $2,500 per month.

1. The company expects its income-tax rate to be 35% during the 4^th quarter of 2014. Income tax payable for the quarter is paid at the beginning of the next quarter.

1. Manning uses the First-In First-Out (FIFO) method to value its inventory.

1. Company policy requires that Manning maintain a minimum cash balance of $5,000 at the end of each month. In the event that Mannings ending monthly cash balance was to fall below $5,000 management has arranged a floating line of credit with the companys bank. The terms of the line of credit are as follows:

• amounts borrowed are in multiples of $5,000 (i.e., $5,000, $10,000, etc.)
• all borrowing is assumed to be done at the beginning of the month
• repayments are made in multiples of $1,000 (i.e., $1,000, $2,000, etc.)
• repayments are assumed to be made at the end of the month (on a FIFO basis)
• the annual percentage rate (APR) of interest for all monies borrowed is 10% (simple interest)
• interestonthemonthlybalanceinthelineofcreditisdueattheendofeachmonth

1. Monthly Purchases Budgets
2. SalesfromOctobertoDecemberexceedtheinitialestimatesby10%,andyouaccelerateyourcashcollectionsbudgettocollect70%inthemonthofthesaleandtheremaining30%inthefirstmonthfollowingthesale.Moreover,startingDecember1,2014Manningraisesthesellingpriceby$0.75perhockeystick.
3. Using data from Part I above, compute the fourth quarters break-even sales both in terms of units and dollars.