402 ACCOUNTING FOR MANAGERS
Use ROI and RI calculations to:ževaluate the current performance of each division; and
ževaluate which proposal the board should approve if finance limits the decision
to a single proposal.
Questions for Chapter 14
14.1 April Co. receives payment from debtors for credit sales as follows:
ž30% in the month of sale.
ž60% in the month following sale.
ž8% in the second month following the sale.
ž2% become bad debts and are never collected.
The following sales are expected:
January £100,000
February £120,000
March £110,000žCalculate how much will be received in March.
žWhat is the value of debtors at the end of March?
14.2 Creassos Ltd was formed in July 2000 with £20,000 of capital. £7,500 of this
was used to purchase equipment. The owner budgeted for the following:
Sales Receipts Purchases Payments Wages Other
from debtors to creditors expenses
July 20,000 – 8,000 5,000 3,000 2,000
Aug. 30,000 20,000 15,000 10,000 4,000 2,000
Sept. 40,000 30,000 20,000 20,000 5,000 3,000Wages and other expenses are paid in cash. In addition to the above, depreciation
is £2,400 per annum. No inventory is held by the company.
žCalculate the profit for each the three months from July to September and
in total.
žCalculate the cash balance at the end of each month.
žPrepare a Balance Sheet at the end of September.
14.3 Highjinks Corporation’s sales department has estimated revenue of
£2,250,000 for your division. 60% of this will be achieved in the first half year
and 40% in the remaining half year. Variable operating costs are typically 40% of
revenue and fixed operating costs are expected to be £35,000 per month for the
first six months and £40,000 per month thereafter.