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Variable: Sales commissions 4% of sales Fixed: Advertising. $200,000 Rent . . . $18,000 Salaries $106,000 Utilities .. $7,000 Insurance . . $3,000 Depreciation. $14,000
Variable: Sales commissions 4% of sales Fixed: Advertising. $200,000 Rent . . . $18,000 Salaries $106,000 Utilities .. $7,000 Insurance . . $3,000 Depreciation. $14,000 Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. A listing of the company's ledger accounts as of March 31 is given below. Assets Cash . . . . . . . ........ 74,000 Accounts receivable ($26,000 February sales; $320,000 March sales). 346,000 Inventory . . 104,000 Prepaid insurance 21,000 Property and equipment (net) . . .. 950,000 Total assets . . . . $1,495,000 Liabilities and Stockholders' Equity Accounts payable. . . . 100,000 Dividends payable . 15,000 Capital stock . . . . . 800,000 Retained earnings . . . .. 580,000 Total liabilities and stockholders' equity . . . $1,495,000 The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash
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