What-If Analysis As the management accountant for the Tyson Company you have been asked to construct a financial planning model for collection of accounts receivable and then to perform a what-if analysis in terms of the assumption regarding estimated uncollectible accounts. You are provided with the following information:
Collection Pattern for Credit Sales: 65% of the company’s credit sales are collected in the month of sale, 30% in the month following the month of sale, and 5% are uncollectible.
Credit Sales: January 2016, $100,000; February 2016, $120,000; March 2016, $110,000.
Required
1. What is meant by the term what-if analysis?
2. Generate a spreadsheet model regarding estimated bad debts expense under the following assumptions regarding the rate of uncollectible accounts: 1%, 3%, 5% (base case), and 8%. Prepare an estimate of bad debts expense for each of three months, January through March, and for the quarter as a whole.
3. What is the value to Tyson Company of creating a model and then performing the what-if analysis described earlier?
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