Chap 14 Outline

# Starts with a sales budget connected to the sales

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Starts with a sales budget Connected to the sales budget will be a schedule of cash collections Need an inventory budget (If we have inventory) so we can plan for purchases Need an expense budget for non-inventory expenses Cash budget – most important budget so you can see if you need to borrow money Then with all of these complete, you can complete “pro forma” financial statements. 14-1

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Chapter 14 - Planning for Profit and Cost Control Exercise 14-2 Preparing a sales budget Welch Company which expects to start operations on January 1, 2011 will sell digital cameras in shopping malls. Welch has budgeted sales as indicated in the following table. The company expects a 10% increase in sales per month for February and Janu- ary. The ratio of cash sales to sales on account will remain stable. Sales January February March Cash Sales 40,000 44,000 48,400 Sales on Account 100,000 110,000 121,000 Total budgeted sales 140,000 154,000 169,400 Preparing a schedule of cash receipts The sales budget of Carson Industries projects the following sales for January through May. Sales Cash On Account January 235,000 70,500 235-70500 = 164,500 February 250,000 75,000 175,000 March 270,000 81,000 189,000 April 212,000 63,600 148,400 May 220,000 66,000 154,000 Carson sells 30% as cash sales and the rest on account (accounts receivable). Of the credit sales 75% are collected the month after sales and 25% are collected in the second month. Determine the cash collections for the cash budget for March, April and May March April May Cash Sales 81,000 63,600 66,000 Collections from month prior 175,000*.75 = 131,250 189,000*.75 148,000*.75 Collections from 2 months prior 164,500*.25 175,000*.25 189,000*.25
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