Concept explainers
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl’s Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a
Sales are made on a cash basis only. Koehl’s purchases must be paid for during the following month. Koehl pays herself a salary of $4,800 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $6,000—this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown in the following table. Purchases during November amounted to $140,000.
- a. Prepare a cash budget for December, January, and February.
- b. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company’s loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
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Intermediate Financial Management (MindTap Course List)
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- Assume that you are a cashier, and your manager requires that you immediatelyenter each sale when it occurs. Recently, lunch hour traffic has increased, and theassistant manager asks you to avoid delays by taking customers’ cash and makingchange without entering sales. The assistant manager says she will add up cash andenter sales after lunch. She says that, in this way, customers will be happy to, andthe register record will always match the cash amount when the manager arrives atthree o’clock.The advantages to the process proposed by the assistant manager include improvedcustomer service, fewer delays, and less work for you. The disadvantage is that the assistant manager could steal cash by simply recording less sales than the cashreceived and them pocketing the excess cash. You decide to reject her suggestionwithout the manager’s approval and to confront her on the ethics of her suggestion.Propose and evaluate two other courses of action you might consider and explainwhyarrow_forwardAssume that you are a cashier and your manager requires that you, as cashier, immediately enter each sale when it occurs. Recently, lunch hour traffic has increased and the assistant manager asks you to avoid delays by taking customers’ cash and making change without entering sales. The assistant manager says she will add up cash and enter sales after lunch. She says that, in this way, the customers will be happy and the register record will always match the cash amount when the manager arrives at three o’clock. The advantage of the process proposed by the assistant manager includes improved customer service, fewer delays, and less work for you. The disadvantage is that the assistant manager could steal cash by simply recording less sales than the cash received and pocketing the excess cash. You decide to reject her suggestion without the manger's approval and to confront her on the ethics of her suggestion. Required: Propose and evaluate two other courses of action you might…arrow_forwardSecond Republic Bank is a lending company that operates in the Southeastern United States. Current economic conditions have kept lending rates low, whichlimits the revenue potential for Second Republic. The bank manager, Vivian Caldwell is concerned about understanding and then controlling costs, and shedecided to try out time-driven ABC. As a pilot, she decided to focus on understanding the cost of taking a customer’s loan application. Vivian knew that it tooklonger to collect applicant information for a mortgage than it did for other types of loans, like auto loans or unsecured loans, but did not know the cost differences,so she collected the following information from a regional branch office.There are two loan application specialists, each earning $112,320 per year. Vivian determined that fringe benefits average 10% of salary and that the officesupport costs for an employee (computer, office space, etc.) in that regional branch averaged $16,848 per employee. Factoring in time off…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning