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Problem 11 (15 marks) AudioFile Products Lid. is a retailer that sells sound systems. The company is planning its cash needs for the month of
Problem 11 (15 marks) AudioFile Products Lid. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2018. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January. January 2018 Forecasted Income Statement Sales $200,000 Cost of goods sold 150,000 Gross profit 50,000 Variable selling expenses $10,000 Fixed administrative expenses 20,000 30,000 Forecasted net operating income $ 20,000 (1 Sales are 10% for cash and 90% on credit. (2 Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. November 2017 sales totaled $300,000 and December 2017 sales totaled $500,000. (3 40% of a month's inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $400,000. (4 |The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2017 was $90,000. February 2018 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged
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