Scribd
Upload
244 views6 pages

CSB - Some WC Problems

The Litzenberger Company projected quarterly sales amounts for the coming year. Accounts receivable at the beginning of the year was $310. Cash collections were calculated for each quarter based on a 45-day collection period and the quarterly sales amounts. The ending balance increased each quarter from $500 to $8,050 by the fourth quarter.

Uploaded by

Tinatini Bakashvili
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
244 views6 pages

CSB - Some WC Problems

The Litzenberger Company projected quarterly sales amounts for the coming year. Accounts receivable at the beginning of the year was $310. Cash collections were calculated for each quarter based on a 45-day collection period and the quarterly sales amounts. The ending balance increased each quarter from $500 to $8,050 by the fourth quarter.

Uploaded by

Tinatini Bakashvili
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 6

The Litzenberger Company has projected the following quarterly sales amounts

for the coming year: a. Accounts receivable at the beginning of the year are
$310. Litzenberger has a 45-day collection period. Calculate cash collections in
each of the four quarters by completing the following:
Days 90 90 90 90
Q1 Q2 Q3 Q4
Sales 1000 1200 1500 300

Collection Days 45 45 45 45

Q1 Q2 Q3 Q4
Beginning Balance 310 500 1,600 3,950
Sales 1,000 1,200 1,500 300
Cash Collection previous quarter (310) 500 1,600 3,950
Cash Collection current quarter (500) (600) (750) (150)
Ending Balance 500 1,600 3,950 8,050
Beginning Ending
Inventory 20,000 30,000
AR 30,000 40,000
AP 50,000 60,000

Sales 500,000
COGS 350,000 70%

Raw Material Days


WIP (Work in Progress)

Inventory Days 26.07


Receivables Days 25.55
Payable Days 57.36

Operating Cycle 51.62


Cash Operating Cycle (5.74)
Wallace Co has annual credit sales of $4,500,000 and on average
customers take 60 days to pay, assuming a 360 day year. As a
result, Wallace Co has a trade receivables balance of $750,000. The
company relies on an overdraft to finance this at an annual interest
rate of 10%. Wallace Co is considering offering an early settlement
discount of 1% for payment in 30 days. It expected that 25% of its
customers (representing 35% of the annual credit sales figure) will
pay in 30 days in order to obtain the discount. If Wallace Co
introduces the proposed discount, what will be the NET impact?

Annual Credit Sales 4,500,000


Customers Pay 60 days
Trade Receivables 750,000
Interest Rate on overdraft 10%
Early Settlement Discount 1.0%
Payment under new terms 30 days
% of customers taking the discount 25%
% of total balance taking the discount 35%

Net Impact

Benefits
Reduction in Receivables 131,250
Interest Saved 13,125

Costs
Discount Cost 15,750

Net Benefit/(Cost) (2,625)


TS Co has daily demand for ball bearings of 40 a day
for each of the 250 working days (50 weeks) of the
year. The ball bearings are purchased from a local
supplier for $2 each. The cost of placing an order is
$64 per order, regardless of the size of the order. The
inventory holding costs, expressed as a percentage of
inventory purchase price, is 25% per annum. What is
the economic order quantity?

Demand per Day 40


Number of Working Days 250
Cost per Unit 2
Placing Cost 80 per order
Inventory Holding Cost 0.5

Annual Demand 10,000

EOQ 1,789
Cost of Placing Orders 447
Inventory Holding Cost 447
difference -
XYZ Co has annual credit sales of $20m and
accounts receivable of $4m. Working capital
is financed by an overdraft at 12% interest
per year. Assume 365 days in a year. What is
the annual financial effect if management
reduces the collection period to 60 days by
offering an early settlement discount of 1%
that all customers adopt?

Annual Credit Sales 20,000,000


AR 4,000,000
AR Days 73
Overdraft rate 12%
New Policy 20
% of Customer Sales Volume adopt 100%
Discount 1%

Benefits
New Receivables 1,095,890
Reduction in Receivables 2,904,110
Reduction in Receivables 2,904,110
Interest Saved 348,493

Costs
Discount Cost 200,000

Net Effect 148,493

You might also like