Part One

SUHAD Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows:

O c t o b e r N o v e m b e r D e c e m b e r Beginning Inventory 1 0.0 0 0 1 0.0 0 0 1 0.0 0 0

Merchandise Purchases 6 0.0 0 0 7 0.0 0 0 3 5.0 0 0

S a l e s 6 0.0 0 0 7 0.0 0 0 4 0.0 0 0

Ending Inventory 1 0.0 0 0 1 0.0 0 0 5.0 0 0 Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month. Accounts receivable at September 30 totaled $450,000.

Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase. Selling and administrative expenses are expected to total $120,000 each month.

One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. There is no depreciation. Accounts payable at September 30 totaled $290,000. Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is scheduled for November, and a dividend of $200,000 is to be paid in December. Required: a. Prepare a schedule of expected cash collections for each of the months of October, November, and December.

b. Prepare a schedule showing expected cash disbursements for merchandise purchases and selling and administrative expenses for each of the months October, November, and December.

c. Prepare a cash budget for each of the months October, November, and December. There is no minimum required ending cash balance.

PART B:

Pringle Company distributes a single product. The company's sales and expenses for a recent month follow:

Total Per Unit

Sales $560,000 $80

Variable expenses 392,000 56

Contribution margin 168,000 24

Fixed expenses 150,000

Net operating income $ 18,000

Instructions:

1. What is the monthly break-even point in unit sold and in sales dollars?

2. What is the company's CM ratio and the variable expense ratio?

3. Without resorting to computations, what is the total contribution margin at the break-even point?

4. If monthly sales increase by $80,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?

5. Refer to the original data. Compute the company's margin of safety in both d o l l a r and p e r c e n t a g e terms.

6. How many units would have to be sold each month to earn a target profit of $18,000?

7 . Pringle Company is considering enhancing its profitsby adding a high quality speaker to its telephone devices. The variable expenses per unit will change from $56 (current) to be $60 (proposed). The suggestion will reduce fixed expenses from $150,000 (current) to be $102,000 (proposed). If sales per unit equal $80 (will not change) and the company sells 10,000 units, by how much will the profits increase/ decrease?

8. Calculate the break-even sales in dollars for the proposed plan in required 7 .