hang Distributors, a wholesale company, is considering whether to open a new dis
ID: 2481261 • Letter: H
Question
hang Distributors, a wholesale company, is considering whether to open a new distribution center. The center would open January 1, 2016. To make the decision, the planning committee requires a master budget for the first quarter of operation (January, February, and March 2016). Construct the first quarter master budget based on the following.
a. January sales are estimated to be $400,000 (of which $100,000 will be cash sales and $300,000 will be on credit). The company expects sales to grow 10% per month for the first few months of operation, and for cash sales to be the same percentage as in January..
Prepare a sales budget for the first quarter.
b. The company expects to collect 100% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts for the first quart wer.
Use the information developed in requirements a and b to determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement.
CHALLENGE – How will the cash budget be affected if it is determined that sales on account in February will be 10% uncollectable?
Explanation / Answer
a)Sales budget for First quarter
Jan : $400,000
Feb: $400,000*1.1= $440,000
Mar: :$440,000*1.1=$484,000
b)Expected Cash flows:
Jan: $100,000
During Feb Cash sales=same % of cash sales of jan= 100,000/400,000=25%
Feb: (Remaining jan sales)+(25% of feb sales)= 300,000+(.25*440,000)=$410,000
Mar: (Reamining Feb sales)+(25% of mar sales)=330,000+(.25*484,000)=$451,000
Account receivable as on Mar 31st=(0.75*484,000)=$363,000
Challenge:
Jan: $100,000
During Feb Cash sales=same % of cash sales of jan= 100,000/400,000=25%
Feb: (Remaining jan sales)+(25% of feb sales)= 300,000+(.25*440,000*.9)=$399,000
Mar: (Reamining Feb sales)+(25% of mar sales)=(0.75*0.9*440,000)+(.25*484,000)=$418,000
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