CHAPTER
15
1. Pretty Lady Cosmetic Products has an
average production process time of forty days. Finished goods are kept on hand
for an average of fifteen days before they are sold. Accounts receivable are
outstanding an average of thirty- five days, and the firm receives forty days
of credit on its purchases from suppliers.
a.
Estimate the average length of the firmâs short-term operating cycle. How often
would the cycle turn over in a year? 50 Days
Operating cycle=
Inventory period+ Receivable period
+ (40days + ? days) +
? days= ?days
# turns per
year=365/?=time
b.
Assume net sales of $ 1,200,000 and cost of goods sold of $ 900,000. Determine
the average investment in accounts receivable, inventories, and accounts
payable. What would be the net financing need considering only these three
accounts? $53,424.66
Inventory
period=Inventory/ (COGS/365)
.0/msohtmlclip1/01/clip_image001.png”>??=Inventory/(?/365) Inventory= 135,616.44
Receivables
period= AR/(Sales/3655)
.0/msohtmlclip1/01/clip_image002.png”>35=AR/(?/365)
AR= 115,068.49
Payment period=AP/(COGS/365)
.0/msohtmlclip1/01/clip_image001.png”>40=AP/(?/365) AP=$98,630.14
Net Financing =AR+Inventory-AP
= ?+?-?
= $152,054.79
CHAPTER
16
4. Suppose the Robinson Company had a
cost of goods sold of 1,000,000 in 2010 and $1,200,000 in 2011.
a. Calculate the inventory turnover for
each year. Comment on your findings.
Robinson Company
2010
Sales
$1,200,000
Cost of Goods sold
$1,000,000
Profit margin
5.0%
Accounts Receivable
$300,000
Inventory
$350,000
Accounts Payable
$200,000
Sales/ day=
$3,287.67
$3,561.64=
$1,300,000/365
COGS/day=
$2,739.73
3,2287.67=
$1,2200,000/366
a.
Inventory
conversion period= Inventory/ COGS per day
? Days ? Days
b.
Average
collection period= AR/ sales per day
? Days ? Days
c.
Average
payment period= AP/COGS per day
? Days ?
Days
d.
Operating
cycle=Inventory conversion + collection periods
? Days ? Days
b. What was Robisonâs net investment in
working capital each year?
Net investment in working capital=
AR+Inventory-AP (as used in this chapter)
2010
2011
=? +?-?
=? +?-?
=$450,000
$600,000
3. Obtain a
current issue of the Federal reserve Bulletin or review of copy from the Fedâs
Website (.federalreserve.gov/”>www.federalreserve.gov ) or (.stlouisfed.org/”>www.stlouisfed.org) and determine the changes in the prime
rate that have occurred since the end of
1998. Comment on any trends in the data.
Rates have been
low since 2008, what is intended results.
4. Compute the
effective cost of not taking the cash discount under the following trade credit
terms:
a. 2/10 net 40
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> 2 x 365 =24.83%
100-2 40-10
a. 2/10 net 50
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> ? x 365 =?%
100-? ? – ?
a. 3/10 net 50
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> ? x 365 =?%
100-? ? – ?
a. 2/20 net 40
.0/msohtmlclip1/01/clip_image003.png”>.0/msohtmlclip1/01/clip_image003.png”> 2 x 365 =?%
100-? ? – ?
5. What
conclusions can you make about credit terms from reviewing your answer to
problem 4?
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