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1.1 Company information

From her prior education and work experience, Ms. Preston understands that the starting point for a financial plan is a reliable sales forecast. Thus, she conferred with Tom Sellers, the sales manager, along with an outside marketing consultant. Tom has studied industry sales and economic trends, along with other important market factors within the highly competitive designer window industry to establish a unit sales forecast. As shown in Exhibit 1, total monthly unit sales volume is expected to continue increasing over the third quarter, but with sales mix shifting toward the new enhanced window (WIND-E).

In addition, Ms. Preston determined through discussions with the accounts receivable manager that all sales to retailers are on account, with no discount, and payable within 15 days. However, the manager indi cates that only 20% of a months sales are typically collected by month-end. An additional 50% is collected in the month following, and the remaining 30% is collected in the second month following sale. Thus far, bad debts have been negligible due to diligent collection efforts.

Since Palm-West Products does not want to forfeit market share to competitors, it maintains a policy to never stock out of its windows. Therefore, the company maintains desired ending inventories equal to 75% of the next months unit sales. Prior to June, PWP sold only the basic window (WIND-B) at a price of $230 per unit. PWP purchases the WIND-B model from an overseas manufacturer for $155 per unit. The company pays for inventory purchases as follows: 50% in the month of purchase and the remaining 50% the following month. In June, PWP began carrying a premium model WIND-P, priced at $380, which costs $225 from the manufacturer. The current sales mix is 80% WIND-B and 20% WIND-P. However, the company expects this mix to shift toward the premium model, along with ongoing competitive pricing pressure (see Exhibit 1).

The companys monthly operating expenses (organized by cost behavior) are provided in Exhibit 2. For simplicity, the company assumes that all operating expenses are paid in cash during the month incurred, with the exception of depreciation and insurance expense.

New fixed assets, including personal computers and office furniture, are expected to be purchased during September for $100,000 cash.

Unit Sales	Forecasted Sales Volume
	July	August	September
Total	10,200	11,400	12,700
BASE	7,956	8,550	9,017
PREMIUM	2,244	2,850	3,683
Sales Price BASE	225	221	216
PREMIUM	372	365	358
Unit Cost BASE	155	155	155
PREMIUM	225	225	225

Exhibit 1. PWPs sales forecast and other sales information.

Variable:

Sales commissions (% of sales dollars) 5% of sales

Shipping & handling (per unit sold) $15 per unit

Fixed: (per month)

Wages and salaries 315,000

Rent 26,000

Utilities 9,500

Insurance expired 4,500

Depreciation 16,000

Other S&A 38,000

Exhibit 2. PWPs planned operating expenses per month.

The company, which is privately owned with Ms. Preston as the majority shareholder, declares dividends of $20,000 at the end of each quarter, payable in the first month of the following quarter. Palm-West Products actual balance sheet, as of June 30, is provided in Exhibit 3.

Although PWP currently has no debt, the company has recently established a revolving line-of-credit through which it can borrow from The Bank of Bay Area at 8% annual interest.To simplify, assume no tax consequences.

June Cash 47,000 Accounts Receivable 2,493,200 Inventory 1,292,850 Prepaid Insurance 20,000 Fixed Assets, net of depreciation 1,480,000 Total Assets 5,333,050

Accounts Payable 889,075 Line-of-Credit 0 Dividends Payable 20,000 Capital Stock 1,750,000 Retained Earnings 2,673,975 5,333,050 Exhibit 3. PWPs balance sheet for June 30. The accounts receivable balance of $2,493,200 at the end of June is from sales in May and June sales. Total sales revenue in May was $1,932,000, while it was $2,392,000 in June. The ending inventory consisted of 6,120 basic windows costing $155 per unit, and 1,530 premium windows at $225 per unit. The cash balance was $40,000, in addition the line-of-credit balance was $234,297 at the end of July.

1.2 Requirements Prepare a Budgeted Balance Sheet for July.