Posted: July 6th, 2016

What is the borrowing rate?

what is meant by a worksheet approach to a conversion and what is meant by a dual-track approach to recording the data?Abcus Company sells its product for $125 per unit. Its actual and projected sales follow:

April (actual) —————-8,000 units $1,000,000
May (actual) —————4,000 units $500,000
June (budgeted) ———12,000 units $1,500,000
July (budgeted) ———–6,000 units $750,000
August (budgeted) —–7,600 units $ 950,000

All sales are on credit. Recent experience shows that 20% of credit sales is collected in the month of the sale, 30% in the month after the sale, 48% in the second month after the sale, and 2% proves to be uncollectible. The product’s purchase price is $100 per unit. All purchases are payable within 12 days. Thus, 60% of purchases made in a month are paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 25% of the next month’s unit sales plus a safety stock of 100 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,200,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $60,000. This minimum is maintained, if necessary by borrowing cash from the bank. If the balance exceeds $60,000 the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 9% interest rate. On May 31, the loan balance is $32,000 and the company’s cash balance is $60,000.

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