Buster Enterprises’ projected sales for the fi rst six months of 2008 are given

Question

Buster Enterprises’ projected sales for the fi rst six months of 2008 are given below:

Fielding Wilderness Outfi tters had projected its sales for the fi rst six months of 2008 to be as follows:

Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company’s cash balance as of March 1st, 2008 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2008. Assume that the interest rate on short-term borrowing is 1% per month. What is Fielding’s projected total receipts (collections) for April?

a. $36,000 b. $124,000 c. -$4,000 d. $180,000

Explanation / Answer

C) 4,526,000 (If you use a percent of sales and sales go up 25%, inventory will go up 25%) A) 85,000 (450,000 sales less 70% cost of sales(315,000), less 50,000 expenses) B) 124,000 (60,000*.2 + 100,000*.4 + 180,000*.4)

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