Question 1

Westover Products has the following estimated monthly sales.  The accounts receivable period is 45 days.What is the amount of the collections in May? Assume each month has 30 days.

Accepted Answer

May collections = (0.50 × $8,600) + (0.50 × $9,500) = $9,050

Question 2

The Three Stooges has the following estimated sales.  Purchases are equal to 75 percent of the following quarter's sales.The accounts payable period is 45 days.Assume each month has 30 days.What is the estimated accounts payable balance at the end of quarter 2?

Accepted Answer

Q₂ ending accounts payable = 45/90(0.75 × $16,800) = $6,300

Question 3

Brown's Ferry Furniture Outlet has an accounts receivable period of 45 days and an accounts payable period of 96 days.The company turns over its inventory 2.8 times per year and marks up the inventory an average of 45 percent over its wholesale cost.What is the length of the firm's operating cycle?

Accepted Answer

Operating cycle = (365/2.8) + 45 = 175.36 days

Question 4

Mark Anderson's Legal Aid has the following estimated revenue.  Assume each month has 30 days and the accounts receivable period is 60 days.How much does the firm expect to collect in May?

Accepted Answer

May collections = $14,800

Question 5

The Fried Green Tomatoes Restaurant increased its operating cycle from 140 days to 148 days while the cash cycle decreased by 3 days.How have these changes affected the accounts payable period?

Accepted Answer

Change in accounts payable period = (148 - 140) + 3 = 11 days; The accounts payable period increased by 11 days.

Question 6

Carter's Gym currently has a 189-day operating cycle.The company is concentrating on increasing its inventory turnover rate from 8.4 to 9.5 times.What will the firm's new operating cycle be if it can effectively make this change?

Accepted Answer

Days in inventory = 365/8.4 = 43.45 days; Days in inventory = 365/9.5 = 38.42 days; New operating cycle = 189 - 43.45 + 38.42 = 183.97 days

Question 7

Joseph Schmidt and Co.has the following estimated sales.  Purchases are equal to 64 percent of the following quarter's sales.What is the cash outlay for accounts payable for quarter 3 if the firm has a 30-day accounts payable period? Assume each month has 30 days.

Accepted Answer

Q₃ payments = 1/3(0.64 ×$17,200) + 2/3(0.64 × $16,100) = $10,539

Question 8

The Green Mile has the following estimated quarterly sales for next year.  The accounts receivable period is 45 days.What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.

Accepted Answer

Q₃ accounts receivable balance = (45/90) × $9,500 = $4,750

Question 9

Original Auto Parts has the following estimated sales.  Purchases are equal to 70 percent of the following quarter's sales.The accounts payable period is 60 days.Assume there are 30 days in each month.How much will the firm owe its suppliers at the end of quarter 3?

Accepted Answer

Q₃ ending accounts payable = 60/90(0.70 × $16,400) = $7,653

Question 10

Kennedy's has the following estimated quarterly sales for next year.  The accounts receivable period is 70 days.What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

Accepted Answer

Q₂ accounts receivable balance = (70/90) × $13,200 = $10,267

Question 11

The Brown Squirrel has the following estimated sales:  The accounts receivable period is 60 days.How much should the firm expect to collect in April?

Accepted Answer

April collections = $21,200

Question 12

Chasteen Hall currently has 55 days in its cash cycle and 131 days in its operating cycle.The firm purchases its inventory from one supplier.This supplier has offered a 5 percent discount to The Switch Back if it will pay for its purchases within 10 days instead of the normal 32 days.If the Switch Back opts to take advantage of the discount offered,its new operating cycle will be _____ days and its new cash cycle will be _____ days.

Accepted Answer

Operating cycle will remain at 131 days. New cash cycle = 55 + 32 - 10 = 77 days

Question 13

Big Al's Meat Market has annual sales of $531,000 and cost of goods sold of $358,000.The profit margin is 4.8 percent and the accounts payable period is 41 days.What is the average accounts payable balance?

Accepted Answer

Accounts payable balance = $358,000/365 × 41 = $40,214

Question 14

Suzie Q's has these projected sales estimates:  The company collects 18 percent of its sales in the month of sale,69 percent in the month following the month of sale,and another 11 percent in the second month following the month of sale.Two percent of sales are never collected.What is the amount of the September collections?

Accepted Answer

September collections = (0.18 × $28,400) + (0.69 × $27,800) + (0.11 × $26,500) = $27,209

Question 15

Michael Jackson,Inc.currently has an operating cycle of 154 days and a cash cycle of 38 days.The firm is implementing some changes that will reduce the inventory period by 16 days and decrease the receivables period by 4 days on average.The accounts payable period will be decreased by 4 days.How many days will be in the new cash cycle once all of these changes become effective?

Accepted Answer

New cash cycle = 38 - 16 - 4 + 4 = 22 days

Question 16

Abbott & Costello has the following estimated sales.  Purchases are equal to 75 percent of the following quarter's sales.What is the estimated amount of purchases for quarter 2?

Accepted Answer

Q₂ purchases = 0.75 × $9,500 = $7,125

Question 17

Captain Kurt's Enterprises has a receivables turnover rate of 12.8,a payables turnover rate of 11.9,and an inventory turnover rate of 15.6.What is the length of the firm's operating cycle?

Accepted Answer

Operating cycle = (365/15.6) + (365/12.8) = 51.92 days

Question 18

The Underground's has annual sales of $1.46 million.The cost of goods sold is equal to 80 percent of sales.The firm has an average accounts receivable balance of $150,000 and an average accounts payable balance of $163,500.How many days on average does it take the firm to pay its suppliers?

Accepted Answer

Days in payables = 365/[($1,460,000 × 0.80)/$163,500] = 51.09 days

Question 19

The Lumber Yard has the following projected sales.  The firm collects 50 percent of its sales in the month of sale,47 percent in the month following the month of sale,and another 2 percent in the second month following the month of sale.The firm never collects 1 percent of its sales.What is the amount of the July collections?

Accepted Answer

July collections = (0.50 × $179,500) + (0.47 × $177,900) + (0.02 × $164,600) = $176,655

Question 20

Harry Joiner,Inc.currently has an inventory turnover of 15.7,a payables turnover of 9.6,and a receivables turnover of 8.1.How many days are in the cash cycle?

Accepted Answer

Cash cycle = (365/15.7) + (365/8.1) - (365/9.6) = 30.29 days

Quiz 16: Short-Term Financial Planning

Westover Products has the following estimated monthly sales. The accounts receivable period is 45 days.What is the amount of the collections in May? Assume each month has 30 days.

The Three Stooges has the following estimated sales. Purchases are equal to 75 percent of the following quarter's sales.The accounts payable period is 45 days.Assume each month has 30 days.What is the estimated accounts payable balance at the end of quarter 2?

Brown's Ferry Furniture Outlet has an accounts receivable period of 45 days and an accounts payable period of 96 days.The company turns over its inventory 2.8 times per year and marks up the inventory an average of 45 percent over its wholesale cost.What is the length of the firm's operating cycle?

Mark Anderson's Legal Aid has the following estimated revenue. Assume each month has 30 days and the accounts receivable period is 60 days.How much does the firm expect to collect in May?

The Fried Green Tomatoes Restaurant increased its operating cycle from 140 days to 148 days while the cash cycle decreased by 3 days.How have these changes affected the accounts payable period?

Carter's Gym currently has a 189-day operating cycle.The company is concentrating on increasing its inventory turnover rate from 8.4 to 9.5 times.What will the firm's new operating cycle be if it can effectively make this change?

Joseph Schmidt and Co.has the following estimated sales. Purchases are equal to 64 percent of the following quarter's sales.What is the cash outlay for accounts payable for quarter 3 if the firm has a 30-day accounts payable period? Assume each month has 30 days.

The Green Mile has the following estimated quarterly sales for next year. The accounts receivable period is 45 days.What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.

Original Auto Parts has the following estimated sales. Purchases are equal to 70 percent of the following quarter's sales.The accounts payable period is 60 days.Assume there are 30 days in each month.How much will the firm owe its suppliers at the end of quarter 3?

Kennedy's has the following estimated quarterly sales for next year. The accounts receivable period is 70 days.What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

The Brown Squirrel has the following estimated sales: The accounts receivable period is 60 days.How much should the firm expect to collect in April?

Big Al's Meat Market has annual sales of $531,000 and cost of goods sold of $358,000.The profit margin is 4.8 percent and the accounts payable period is 41 days.What is the average accounts payable balance?

Abbott & Costello has the following estimated sales. Purchases are equal to 75 percent of the following quarter's sales.What is the estimated amount of purchases for quarter 2?

Captain Kurt's Enterprises has a receivables turnover rate of 12.8,a payables turnover rate of 11.9,and an inventory turnover rate of 15.6.What is the length of the firm's operating cycle?

The Underground's has annual sales of $1.46 million.The cost of goods sold is equal to 80 percent of sales.The firm has an average accounts receivable balance of $150,000 and an average accounts payable balance of $163,500.How many days on average does it take the firm to pay its suppliers?

Harry Joiner,Inc.currently has an inventory turnover of 15.7,a payables turnover of 9.6,and a receivables turnover of 8.1.How many days are in the cash cycle?