Splendid Stereo, Inc., is a large retailer of stereo equipment. The controller is about toprepare the budget for the first quarter of 20×5. Past experience has indicated that 75 percentof the store’s sales are cash sales. The collection experience for the sales on account is asfollows:
80 percent during month of sale
15 percent during month following sale
5 percent uncollectible
The total sales for December 20×4 are expected to be $380,000. The controller feels thatsales in January 20×5 could range from $200,000 to $320,000.
1.Demonstrate how financial planning can be used to project cash receipts inJanuary of 20×5 for three different levels of January sales.