Question

The management team of Stuart Modems, Inc. (SMI) wants to investigate the effect of several different growth rates on sales and cash receipts. Cash sales for the month of January are expected to be $160,000. Credit sales for January are expected to be $800,000. SMI collects 100 percent of credit sales in the month following the month of sale. Assume a beginning balance in accounts receivable of $768,000 Required Calculate the amount of sales and cash receipts for the months of February and March assuming a growth rate of 2 percent and 4 percent. The results at a growth rate of 1 percent are shown as an example. Mar Feb $161,600 808,000 5969,600 $ 163,216 816.00 $979, 296 Sales Budget Jan Cash sales $160,000 Sales on account 800,000 Total budgeted sales 5960,000 Schedule of Cash Receipts Current cash sales $160,000 plus collections from accounts receivable 768,000 Total budgeted collections $161,600 300,000 5961,600 $163,216 800.000 $971,216 Use the following forms, assuming a growth rate of 2 percent and 4 percent:

Answer 1

Answer to Part 1 Sales Budget Growth Rate of 2% Feb Jan Mar Cash Sales 160,000 163,200 166,464 Sales on account 832,320 800,000 816,000 Total Budgeted Sales 960,000 979,200 998,784 Schedule of Cash receipts Current Cash Sales Plus: Collections from Accounts Receivable Total Budgeted Collections 160,000 163,200 166,464 768,000 783,360 799,027 928,000 946,560 965,491 Answer to Part 2 Sales Budget Growth Rate of 4% Feb Jan Mar Cash Sales Sales on account Total Budgeted Sales 166,400 160,000 173,056 865,280 1,038,336 800,000 960,000 832,000 998,400 Schedule of Cash receipts Current Cash Sales Plus: Collections from Accounts Receivable Total Budgeted Collections 166,400 798,720 965,120 160,000 768,000 928,000 173,056 830,669 1,003,725