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Chapter 22: Q18SE (page 1232)

Using sensitivity analysis in budgeting
Refer to the Victors schedule of cash receipts from customers that you prepared in Short Exercise S22-15. Now assume that Victors’s sales are collected as follows:
40% in the month of the sale
20% in the month after the sale
39% two months after the sale
1% never collected
Prepare a revised schedule of cash receipts for January and February

Short Answer

Expert verified

Answer

Total cash receipts from the customers are $513,520 in the month of January and $438,730 in the month of February.

Step by step solution

01

Meaning of schedule of cash receipts

A cash receipt schedule is created to record the cash received from customers.

02

Preparation of schedule of cash receipts

Particulars	January	February
Total budgeted sales	$702,000	$349,000
Cash receipts from customers:
40 % in the month of sale	$280,800	$139,600
20% in the month after sale	$407,000*20% =$81,400	$702,000*20% =$140,400
39% two months after sales	$388,000*39% =$151,320	$407,000*39% =$158,730
Total cash receipts from customers	$513,520	$438,730

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Most popular questions from this chapter

Preparing a financial budget—cash budget, sensitivity analysis

Leichter Auto Parts, a family-owned auto parts store, began January with \(10,500 cash. Management forecasts that collections from credit customers will be \)11,000 in January and \(15,200 in February. The store is scheduled to receive \)8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases (\(15,600 in January and \)14,800 in February) and selling and administrative expenses (\(2,900 each month).

Leichter Auto Part'sbank requires a \)10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below \(10,000, the bank automatically extends credit to the store in multiples of \)1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of \(2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Leichter Auto Part'scash budget for January and February.

2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total \)14,200 instead of $15,200?

Preparing an operating budget—sales budget

Trailers sells its rock-climbing shoes worldwide. Trailers expects to sell 6,500 pairs of shoes for \(185 each in January and 4,000 pairs of shoes for \)220 each in February. All sales are cash only. Prepare the sales budget for January and February.

Question: Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply’s March 31, 2018, balance sheet follows:

The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: • Rent: \)2,000 • Depreciation: \(200 • Insurance: \)100 • Income tax: $2,200

Requirements

1. Prepare Burton’s sales budget for April and May 2018. Round all calculations to the nearest dollar.

2. Prepare Burton’s inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Burton’s selling and administrative expense budget for April and May.

Using sensitivity analysis Caputo Company prepared the following budgeted income statement for the first quarter of 2018:

Caputo Company is considering two options. Option 1 is to increase advertising by \(1,100 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 55% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 25% per month rather than 20%.

Requirements

1. Prepare budgeted income statements for both options, assuming both options begin in January and January sales remain \)10,000. Round all calculations to the nearest dollar.

2. Which option should Caputo choose? Explain your reasoning.

Preparing a financial budget—budgeted balance sheet

Use the following June actual ending balances and July 31, 2018, budgeted amounts for Omas to prepare a budgeted balance sheet for July 31, 2018.

a. June 30 Merchandise Inventory balance, \(17,770

b. July purchase of Merchandise Inventory, \)4,400, paid in cash

c. July payments of Accounts Payable, \(8,400

d. June 30 Accounts Payable balance, \)10,700

e. June 30 Furniture and Fixtures balance, \(34,100; Accumulated Depreciation balance, \)29,880

f. June 30 total stockholders’ equity balance, \(28,020

g. July Depreciation Expense, \)500

h. Cost of Goods Sold, 60% of sales

i. Other July expenses, including income tax, \(2,000, paid in cash

j. June 30 Cash balance, \)11,600

k. July budgeted sales, all on account, \(12,600

l. June 30 Accounts Receivable balance, \)5,130

m. July cash receipts from collections on account, $14,700

(Hint: It may be helpful to trace the effects of each transaction on the accounting equation to determine the ending balance of each account.)

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