As the manager of Corby and Danes Ltd you are concerned about the current collection policy from credit customers. The current policy is that all sales are to be made on credit, with the expectation that 70% of all accounts receivable will be collected in the month immediately following the sale, 20% in the second month, 8% in the third month, and the balance written off as bad debt. The actual sales for the four months January to April were as follows: January $40 000; February $50 000; March $60 000; April $60 000 The forecast sales for the next four months are: May $70 000; June $80000; July $80 000; August $80 000 You need a report that will show how much cash you can expect to collect each month from accounts receivable for the period February to August. You would also like to know what the cash flow patterns would be if either of the two policies below were to be adopted from now (i.e. from May) onwards. Policy 1: 80% of the accounts receivable to be collected in the month following the sale, 10% in the second month, 8% in the third month and the balance written off as bad debt. Policy 2: 50% of the accounts receivable to be collected in the month following the sale, 40% in the second month, 9% in the third month and the balance written off as bad debt. This policy will change the sales forecast as follows: May $80000; June $90000; July $100 000; August $100 000.
-Draft a report on collection from accounts receivable.
-Prepare additional reports to reveal the cash flow situation under the two proposed policies.
CHAPTER 8 ACTIVITY 11 AND 12 ; CASE STUDY 8.2
- Identify each item under ‘Workings’ as a financial or a non-financial performance indicator by placing a tick in the appropriate column, giving your reason.
- Gross profit of the cosmetic section of XYZ Department Store was $12000 for May.
- ABC Motor Car Company repaired five cars under warranty in June.
- There were three complaints made about customer service by The Super Market during the past week.
- Net profit of XYZ Department Store was $72000 for May. 5. 8% of the inspected toys were rejected by the inspection department of the Rubber Toy Manufacturing Company in the month of September.
- Determine the appropriate performance indicators in the following cases: a. Gross profits for the months of April and May were $180 000 and $220 000, respectively. Sales for the same months were $360 000 and $400 000, respectively. b. Company A served 500 customers in January and received ten complaints about the quality of service. c. The sale value of the Car Sales
.Company’s cars was $4 million for the first quarter of 200X. The total sales value of cars sold in the state in which the company operates was $18 million. d. The Super Sports Motor Cycle Company sold 125 new motorcycles in April. The total sales for the month by all the motorcycle companies in the state was 750. e. On Monday, three people in the third shift took leave without prior notice. The total number of workers in the third shift is 75.
8.2 CONTROLLING SALES EXPENSES
Faced with a need to justify their sales expenses, the sales staff of the western division of Bluefern Auto Accessories met their manager, Pauline Vandeloo, to examine the recent cost reports sent to them by the accounting department. The reports provided general sales expense figures according to geographical territory. One team member said that there was a variety of customers in each region, including commercial users and local retailers. Another team member commented that the time that had to be spent with customers varied according to the nature of the customer. Pauline was concerned that the current figures did not fit the needs of the current sales team’s activities. It was not clear what the figures meant for the division’s future decisions. There was no scope to determine who were the key customers—the 20% or so of customers who contributed 80% of the division’s business.
What information might the accounting staff provide to enable this work group to • make the necessary decisions and to justify their costs to higher management? What might be the appropriate headings for a cost report for this division? •
CHAPTER 9 ACTIVITIES 4 AND 5
- From the following information about direct materials and direct labour for XYZ Ltd, prepare a performance report showing the analysis of variance.
Direct materials: 500 units at $6 per unit
Direct labour: 2000 hours at $30 per hour
Direct materials: 525 units at $6.20 per unit
Direct labour: 1950 hours at $28 per hour
- The manufacturing overhead budget for a company for 20X1 was as follows: Fixed overhead: $72 000 Variable overhead: $3 per direct labour hour Budgeted direct labour hours: 15 000 The actual fixed overhead incurred was $76 000 and the variable overhead amounted to $42600. The actual direct labour hours for the year were 16 000. a. Calculate the total recovered fixed overhead and any under/over recovery. b. Analyse the variance into capacity and expenditure variances for fixed overhead, and into efficiency and expenditure variances for variable overhead.