Cannon Company Has Enjoyed a Rapid Increase in Sales in Recent

question 28

Multiple Choice

Cannon Company has enjoyed a rapid increase in sales in recent years,following a decision to sell on credit.However,the firm has noticed a recent increase in its collection period.Last year,total sales were $1 million,and $250,000 of these sales were on credit.During the year,the accounts receivable account averaged $41,664.It is expected that sales will increase in the forthcoming year by 50 percent,and,while credit sales should continue to be the same proportion of total sales,it is expected that the days sales outstanding will also increase by 50 percent.If the resulting increase in accounts receivable must be financed by external funds,how much external funding will Cannon need?

• A) $41,664
• B) $52,086
• C) $47,359
• D) $106,471
• E) $93,750

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Definitions:

Variable Manufacturing Overhead

Costs that fluctuate with the level of production output, such as utilities or materials that vary with production volumes.

Direct Labor-hours

The total amount of time spent by workers directly involved in the manufacturing of a product.

Variable Overhead Standards

The budgeted or standard costs associated with variable overheads, which are expected to change in proportion to different levels of production activity.

Direct Labor-hours

Represents the total hours of labor directly involved in manufacturing a product or delivering a service.