A. What are two benefits of first forecasting sales before immersing the company
ID: 2757538 • Letter: A
Question
A. What are two benefits of first forecasting sales before immersing the company in a detailed master budget process? [Think about where you are with what resources you have now, versus where you want to go that may possibly need more or different resources to get there].
B. The most common way to accelerate cash collections is to offer your customer a cash discount for early payment. The customer has the option but not the obligation on each payment to take or not take the cash discount. For example, a 1% discount offered to pay in 10 days instead of 30 days is setup in the accounting system as 1% 10/net 30. What about setting up or asking customers to pay online or to use VISA/MC? Is this better or not and less expensive or not than waiting for and processing checks received via US mail? Explain.
Explanation / Answer
A) Forecasting sales is the first step in a budgeting process. Unless constrained by production capacity, the forecast of sales for the budget pleriod would be the key factor in the budgeting process. All other activites like production, purchasing, staffing etc would be derived from the level of expected sales.
If there are production or other constraints to achieve the expected sales, the feasibility of increasing the capacity or measures to overcome the contraints should be studied.
Thus, the benefits from a sales forecast are that it
B) Requiring customers to pay on line or through credit/debit cards will enable a firm to eliminate the mailing time that a check written by a customer would take and also the collection float. The benefits would be the finance cost saved due to the reduction in level of receivables plus the reduction in administrative expenses involved in receiving checks, recording them and sending them to the bank.
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