Question

Global Services is considering a promotional campaign that will increase annual credit sales by $510,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: Accounts receivable Inventory Plant and equipment 5 times 6 times 3 times All $510,000 of the sales will be collectible. However, collection costs will be 2 percent of sales, and production and selling costs will be 71 percent of sales. The cost to carry inventory will be 6 percent of inventory. Depreciation expense on plant and equipment will be 20 percent of plant and equipment. The tax rate is 25 percent a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together Accounts receivable Inventory Ptant and equipment Total Investment b. Compute the accounts receivable collection costs and production and selling costs and then add the two figures together Collection cost Production and selling costs

Answer 1

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ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr Wrap Text General Merge & Center - $ % 8 . Cell Styles Insert Delete Format Conditional Format Formatting as Table Styles Calibri -11AA = = = BI U DA Font foc CU CV CW CX AutoSum - A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells CY CZ DA DBDC D D DE DES E Copy Paste Format Painter Clipboard CV446 2 CT 446 447 448 449 450 451 ACCOUNTS RECEIVABLE = SALES ACCOUNTS RECEIVABLE TRUNOVER ACCOUNTS RECEIVABLE = 510000/5 102000 A INVENTORY = SALES/INVENTORY TURNOVER INVENTORY = 510000/6 85000 B 452 PLANT & EQUIPMENT = SALES /PLANT & EQUIPMENT TURNOVER PLANT & EQUIPMENT = 510000/3 170000 C TOTAL INVESTMENT = 357000 (A+B+C) 453 454 455 456 457 458 459 460 461 COLLECTION COSTS = 2% X 510000 PRODUCTION & SELLING COSTS = 71% X 580000 TOTAL COST = 10200 D 362100 E 372300 (D+E) 462 COST OF CARRYING INVENTORY = 6% OF INVENTORY COST OF CARRYING INVENTORY = 6% X 85000 463 5100 464 FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: 569 DIFF ANALYSIS BO ovel 130% Rea _ 0 + ODER 9 * 1 ENG 16-08-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr Wrap Text General Merge & Center - $ % 8 . Cell Styles Insert Delete Format Conditional Format Formatting as Table Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Calibri -11AA = = = BI U DA Font fo CU CV CW CX Find & Select Alignment Number E Copy Paste Format Painter Clipboard CV482 2 CT 464 465 Cells CY CZ DA DB D C D D DE DES (d) DEPRECIATION = 20% OF PLANT & MACHINERY DEPRECIATION = 20% OF 170000 466 34000 TOTAL COSTS = (b) +(c) + (d) = 411400 LESS 467 468 469 470 471 472 473 474 475 476 477 478 479 480 481 482 INCOME AFTER TAX SALES TOTAL COST PROFIT BEFORE TAX TAX NET INCOME AFTER TAX 510000 411400 98600 24650 73950 LESS (8-1) 73950/357000*100= 20.71% AFTER TAX RATE OF RETURN (NET INCOME AFTER TAX/INVESTMENT *100) (8-2) YES BECAUSE AFTER TAX RATE OF RETURN IS HIGHER THAN 12% FIFO CASH BUDGET ferences: 569 budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS BO ovel 130% Rea _ 0 + ODER 9 * 1 ENG 16-08-2019