Simply use the information available even if it is too vague

11:39 4 X E 167 case Bulltuff Stock Trailer ... Bulltuff Stock Trailers, Inc. Hal Carrier of Bulltuff Stock Trailers, Inc., has asked you for help. In the last four months, he has had several checks written to suppliers that were refused by his bank because of nonsufficient funds. Now his main supplier, Alcoa Aluminum Supply Co., has cut off credit. "We're sorry, Hal, Alcoa's credit officer said, "but we simply cannot keep accepting your checks. Every time one bounces, it costs us at least $100 combined in processing fees and our internal accounting. You simply will have to pay cash or bring a cashier's check for future purchases." Hal simply cannot understand why his checks keep bouncing. "We've plenty of sales," he said, "and our customers pay pretty much as agreed. Right now, I have only one customer who is as much as 60 days past due. My accountant assures me that our cash balance never goes negative. So why are my checks bouncing?" To try to understand Hal's problem and to advise him how to correct it, you have collected the following information about Hal's business: 1. Cash sales are 10% of total sales. 2. Credit card sales are 10% of total sales and are collected the week following the sale. The credit card provider deducts 2.5% of the gross amount of cach credit card sale. (For example, on a $100 sale, $2.50 is deducted). 3. Sale on account are 80% of all sales. All credit sales are to dealers. Terms for dealers are 30-30- 30," three equal payments made in each of the 3 months following the sale. Payments are considered late if they're not received by the tenth of the month in which they are due. 4. Direct materials, primarily aluminum, are 60% of the cost of building a trailer. Before credit was cut off, Bulltuff paid 30% on delivery and the remainder in 30 days. Now it must pay cash on delivery 5. Total cost of direct labor is 15% of the cost of building a trailer. Workers are paid each Friday for work performed the previous week. Withholding and employment taxes are paid each Friday, also. 6. Variable costs combined (materials and labor) are 50% of gross sales. Fixed costs are not allocated to the cost of trailers but are expensed evenly across the year. 7. All other costs combined are treated as fixed costs, and total $1 million per year. 8. Bulltuff leases its building and equipment and has no depreciation. 9. Sales for the year were originally projected to be $2,450,000. However, given the current growth in sales, Hall now estimates that sales will be $5,000,000. 10. Sales for the first four months of the year have been: January = $208,000 February = $261,000 March = $293,000 April = $328,000 What is causing Hal's cash flow problems? Develop a plan to address the problems. 11:39 4 X E 167 case Bulltuff Stock Trailer ... Bulltuff Stock Trailers, Inc. Hal Carrier of Bulltuff Stock Trailers, Inc., has asked you for help. In the last four months, he has had several checks written to suppliers that were refused by his bank because of nonsufficient funds. Now his main supplier, Alcoa Aluminum Supply Co., has cut off credit. "We're sorry, Hal, Alcoa's credit officer said, "but we simply cannot keep accepting your checks. Every time one bounces, it costs us at least $100 combined in processing fees and our internal accounting. You simply will have to pay cash or bring a cashier's check for future purchases." Hal simply cannot understand why his checks keep bouncing. "We've plenty of sales," he said, "and our customers pay pretty much as agreed. Right now, I have only one customer who is as much as 60 days past due. My accountant assures me that our cash balance never goes negative. So why are my checks bouncing?" To try to understand Hal's problem and to advise him how to correct it, you have collected the following information about Hal's business: 1. Cash sales are 10% of total sales. 2. Credit card sales are 10% of total sales and are collected the week following the sale. The credit card provider deducts 2.5% of the gross amount of cach credit card sale. (For example, on a $100 sale, $2.50 is deducted). 3. Sale on account are 80% of all sales. All credit sales are to dealers. Terms for dealers are 30-30- 30," three equal payments made in each of the 3 months following the sale. Payments are considered late if they're not received by the tenth of the month in which they are due. 4. Direct materials, primarily aluminum, are 60% of the cost of building a trailer. Before credit was cut off, Bulltuff paid 30% on delivery and the remainder in 30 days. Now it must pay cash on delivery 5. Total cost of direct labor is 15% of the cost of building a trailer. Workers are paid each Friday for work performed the previous week. Withholding and employment taxes are paid each Friday, also. 6. Variable costs combined (materials and labor) are 50% of gross sales. Fixed costs are not allocated to the cost of trailers but are expensed evenly across the year. 7. All other costs combined are treated as fixed costs, and total $1 million per year. 8. Bulltuff leases its building and equipment and has no depreciation. 9. Sales for the year were originally projected to be $2,450,000. However, given the current growth in sales, Hall now estimates that sales will be $5,000,000. 10. Sales for the first four months of the year have been: January = $208,000 February = $261,000 March = $293,000 April = $328,000 What is causing Hal's cash flow problems? Develop a plan to address the problems