Safari File Edit View History Bookmarks Window Help ID Globa

Safari File Edit View History Bookmarks Window Help ID Global Services is considering promotional accounts receivable, inventory, and plant and equipment. The turnover for each is as follows a promotional campaign that will increase annual credit sales by $530,000. The company will require investments in Accounts recelvable Inventory Plant and equipment 2 Smes 5 times 1 time All $530,000 of the sales will be collectible. However, collection sales. The cost to carry inventory will be 5 percent of inventory. Depreciation e equipment. The tax rate is 30 percent. costs will be 4 percent of sales, and production and selling costs will be 70 percent of a. Compute the investments in accounts receivable, inventory, and plant and equipment based on the turnover ratios. Add the three together Inventory Plant and equipment Total Investment b. Compute the accounts receivable collection costs and production and selling costs and then add the two figures together Production and selling costs Total collection, production, and seling costs

Solution

a) calculations: accounts receivable 265000 530000/2 divide by the turnover ratio inventory 106000 530000/5 Plant and equipment 530000 530000/1 total investment 901000 b) collection costs 21200 530000*0.04 multiply by the given percentage Production and selling costs 371000 530000*0.7 total collection , production and selling costs 392200