Problem 9-29

Splendid Stereo, Inc., is a large retailer of stereo equipment. The controller is about to prepare the bud-

get for the first quarter of 20x5. Past experience has indicated that 75 percent of the stores sales are cash sales. The collection experience for the sales on account is as follows:

80 percent during month of sale

15 percent during month following sale

5 percent uncollectible

The total sales for December 20x4 are expected to be $380,000. The controller feels that sales in

January 20x5 could range from $200,000 to $320,000.

Required:

1) Demonstrate how financial planning can be used to project cash receipts in January of 20x5 for three different levels of January sales. Use the following columnar format.

	Total sales in Jan	uary	20x5
	$200,000	$260,000	320,000
Cash receipts in January 20x5:
From December sales on account	$	$	$
From January cash sales	$	$	$
From January sales on account	$	$	$
Total Cash Receipts	$	$	$

2) How could the controller of Splendid Stereo, Inc., use this financial planning approach to help in planning operations for January?