I am so confused! :eek:
Assume that Hickory Company has the following data related to its accounts receivable:
2005 2006
Net sales.. . $1,425,000 $1,650,000
Net receivables:
Beginning of year.. . 375,000 333,500
End of year.. . 420,000 375,000
Use these data to compute accounts receivable turnover ratios and average collection periods
For 2005 and 2006. Based on your analysis, is Hickory Company managing its receivables
Better or worse in 2006 than it did in 2005?
Case 7-3
Credit Policy Review
The president, vice president, and sales manager of Moorer Corporation were discussing the
Company’s present credit policy. The sales manager suggested that potential sales were being
Lost to competitors because of Moorer Corporation’s tight restrictions on granting credit to consumers.
He stated that if credit policies were loosened, the current year’s estimated credit sales
Of $3,000,000 could be increased by at least 20% next year with an increase in uncollectible
Accounts receivable of only $10,000 over this year’s amount of $37,500. He argued that because
The company’s cost of sales is only 25% of revenues, the company would certainly come
Out ahead.
The vice president, however, suggested that a better alternative to easier credit terms would
Be to accept consumer credit cards such as VISA or MASTERCARD. She argued that this alternative
Could increase sales by 40%. The credit card finance charges to Moorer Corporation
Would be 4% of the additional sales.
At this point, the president interrupted by saying that he wasn’t at all sure that increasing
Credit sales of any kind was a good thing. In fact, he suggested that the $37,500 of uncollectible
Accounts receivable was altogether too high. He wondered whether the company should discontinue
Offering sales on account.
With the information given, determine whether Moorer Corporation would be better off
Under the sales manager’s proposal or the vice president’s proposal. Also, address the president’s
Suggestion that credit sales of all types be abolished.
Ch 21 Problem 21-5
JIT Inventory
The president of Penman Corporation, John Burton, has asked you, the company’s controller,
To advise him on whether Penman should develop a just-in-time (JIT) inventory system. Your
Research concludes that there is a high cost associated with inventory storage facilities; that inventories
Use a large portion of the company’s cash flow; and that because of the nature of the
Inventory, there is a significant amount of shrinkage. Research also shows that neither of Penman’s
Two competitors uses a JIT inventory system. Most of Penman’s employees are trained
To do only one job and belong to a local union. The union is strong and, in the past, has opposed
Major production changes. The union believes major changes will result in the loss of
Union employees’ jobs. Your research indicates that Penman’s major production item (a fairly
New product in the market) should continue to have strong sales growth.
Required:
1. Using the information provided, advise John Burton to either continue the present system
Or work to develop a JIT inventory system.
2. Assume John decides to develop an inventory management system. He plans to evaluate the
System after one year. List at least four possible performance measures John could use to
Evaluate the effectiveness of the system. Describe what information these measures would
Provide John.
Sales
