Question - Splendid Stereo, Inc., is a large retailer of stereo equipment. The controller is about to prepare the budget for the first quarter of 20x5. Past experience has indicated that 75 percent of the store's 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: Demonstrate how financial planning can be used to project cash receipts in January of 20x5 for three different levels of January sales.