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fredd [130]
3 years ago
13

As a private limited firm dealing with garment manufacturing, you have little cash in hand but considerable business potential.

You suddenly get an order to deliver 1,000 shirts at a price of $50 each. You have the entire infrastructure in place, but need $15,000 to procure the fabric and accessories for shirts. How will you raise money to serve this order? How will the answer differ if the business is a sole proprietorship?
Business
1 answer:
Alborosie3 years ago
4 0

Answer:

A private limited firm refers to a corporation. A corporation’s internal sources of financing are mostly limited to its retained profits, and money realized from the sale of its assets. In case of the given example, because the company does not have enough cash on hand, it will have to rely on several external sources of financing. The most important source of procuring financing for the company is a bank loan. Thus, the company can raise money from institutions such as banks or other creditors in the form of loans. The company will need to repay loans in the future, and therefore the company will record this as a liability in its accounts. However, these ways of procuring money would help the company arrange $15,000 in order to purchase the fabric and other accessories.

The sources of financing will remain the same even in the case of a sole proprietorship; that is, retained earnings or loans from external sources such as banks. However, in the case of a public limited company, the answer would change. In the case of a public limited business, it has another option of raising financing through the issue of common or equity shares.

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Budgeted unit sales     8,400   10,000    12,000       13,000

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40% month of sale      3,360     4,000      4,800        5,200

60% month following                5,040      6,000        7,200

Total cash collections 3,360     9,040    10,800       12,400

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Ending Inventory        2,000     2,400     2,600

Cost of goods sold     8,400   10,000    12,000       13,000

Goods available        10,400   12,400    14,600

Beginning Inventory   1,680    2,000      2,400         2,600

Production costs        8,720   10,400    12,200

Unit cost of materials $10         $10          $10   ($2 * 5)

Units produced            872      1,040      1,220

Accounts receivable balance at July end:

June credit sales      $8,400

June cash collection  3,360

July 1 Beginning bal.  5,040

July credit sales       10,000

Cash collections       9,040

Ending balance        6,000

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