Victor Corporation is in the retail industry and purchases a product for resale. In November, the company is preparing pro forma statements for December. The company estimates that sales will be 240,000 units in December at a selling price of $12 per unit. Other forecasts are as follows:

a. Victor Company estimates that 60 percent of sales made in the current month are collected in the month of the sale, 30 percent are collected in the month after the sale, and 5 percent are collected in the second month after the sale.
b. The selling and administrative expenses include $45,000 of depreciation expense. The remaining balance is paid in cash in the month.
c. Victor Company pays for 70 percent of purchases in the month the purchase is made. The remaining 30 percent is paid in the month after the company has made the purchase.
Required:
1. How many units will Victor Company need to purchase in December? What is the cost of purchasing the units for December?
2. Complete a pro forma or budgeted income statement for the month ended December 31. (Ignore the impact of income taxes.)
3. Complete a pro forma statement of cash flows for the month ended December 31.
4. Why is it important for companies to have accurate sales forecasts? What problems can occur when sales forecasts are inaccurate?

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Merchandise inventory, December 1 Desired ending inventory for December 31 Cost to purchase one unit Selling and administrative expenses Miscellaneous expenses (paid in cash) Opening cash balance, December 1 40,000 units 60,000 units $8 $225,000 $61,500 $60,000 $2,700,000 $1,280,000 $2,220,000 $1,568,000 October sales October purchases November sales November purchases