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# Backspace, Inc. and Hermosa Enterprises

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I need help with these 2 problems.Thanks.

3. The accounting records of Backspace, Inc., revealed an accounts receivable balance of \$195,000 on January 1, 20x6. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to \$500,000 and \$530,000, respectively.
Assume that in the latter half of 20x6, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows:

Required:
(A) Compute the company's cash inflows for January and February, 20x6.
(B) Determine the outstanding receivables balance at the end of February.
(C) Compare the sales and collection patterns before and after the arrival of the new sales manager. Have things improved or deteriorated? Explain.
(D) On the basis of the information presented, determine what likely caused the improvement or deterioration in collection patterns.

4. Hermosa Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all materials purchased during the period were used in production:
Direct materials:
Standard price per pound: \$9
Actual price per pound: \$8
Price variance: \$20,000F
Total of direct-material variances: \$2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: \$15
Efficiency variance: \$28,000F
Total of direct-labor variances: \$12,000U
Hermosa completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) materials quantity variance, (3) labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.

#### Solution Preview

3. The accounting records of Backspace, Inc., revealed an accounts receivable balance of \$195,000 on January 1, 20x6. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to \$500,000 and \$530,000, respectively.
Assume that in the latter half of 20x6, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows:

Required:
(A) Compute the company's cash inflows for January and February, 20x6.

January February
Cash sales: 40% 200,000 212,000
Credit sales: 60%
Collected in the month of sale: 30% 90,000 95,400
Collected in the month following sale: ...

#### Solution Summary

This solution is comprised of a detailed explanation to compute the company's cash inflows for January and February, 20x6, determine the outstanding receivables balance at the end of February, compare the sales and collection patterns before and after the arrival of the new sales manager, determine what likely caused the improvement or deterioration in collection patterns, and determine the following: (1) actual materials used, (2) materials quantity variance, (3) labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.

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