Waiting for answer This question has not been answered yet. You can hire a professional tutor to get the answer.
Page 1 of 3 1. Heron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair.
Page 1 of 31. Heron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Heron, so Heron has no manufacturing-related costs.2. As of 11/06, each lawn chair costs Heron $4 per unit. Henron sells each chair for $10 per unit.3. The estimated sales (in units) are as follows:Nov 0611,250Dec 0611,600Jan 0710,000Feb 0711,400Mar 0712,000Apr 0715,600May 0718,000June 0722,000July 0718,0004. Per an existing contract, the cost of each chair is scheduled to increase by 5% on March 1, 2007. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on May 1, 2007. To offset these increases, the company plans to raise the sales price to $11.25 per unit beginning May 1, 2007. The sales forecast (i.e., estimated sales in units) takes this price increase into account.5. Thirty percent of any month’s sales are for cash, and the remaining 70% are on credit. Thirty percent of the credit sales are collected in the month of sale, 50% are collected in the following month, and 16% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale.6. The firm’s policy regarding inventory is to stock (i.e. have in ending inventory) 40% of the forecasted demand in units (i.e., estimated sales) for the next month. Heron uses the first-in, first-out (FIFO) method in accounting for inventories.7. Forty percent of the inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month (i.e. all of the previous month’s Accounts Payable are paid off by the end of any month.)8. Per a prior contract, a cash payment of $50,000 for equipment previously purchased is due in January. Another payment of $30,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed in item 11 below. Also, dividends of $12,000 are to be paid in March.9. Monthly operating expenses consist of the following (if these are cash expenses, they are paid when incurred):Salaries and Wages$3,000Page 2 of 3Sales Commissions7% of sales revenueRent$8,000Other Variable Cash Expenses6% of sales revenueSupplies Expense: See note$2,000Other: See note$48,000Note: Other general and administrative overhead is expected to be $48,000 per month. Of this amount, $24,000 represents depreciation and other non-cash expenses. The company maintains on hand one month’s worth of supplies.10. The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible.11. Cash on hand as of December 31, 2006 is expected to be $15,000. In addition, there will be no notes payable as of this date.12. See below the other Balance Sheet accounts with their expected balances as of December 31, 2006: Supplies..............................................$ 2,000 Property, Plant and Equipment...........1,050,000 Accumulated Depreciation................. 526,475 Common Stock................................... 200,000 Retained Earnings.............................. 322,811Page 3 of 3