Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 45

Accounts Receivable Collections and Sensitivity Analysis Doreen Company is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable:

Actual credit sales for March	$120,000
Actual credit sales for April	$150,000
Estimated credit sales for May	$200,000
Estimated collections in the month of sale	25%
Estimated collections in the first month after the month of sale	60%
Estimated collections in the second month after the month of sale	10%
Estimated provision for bad debts made in the month of sale	5%

The firm writes off all uncollectible accounts at the end of the second month after the month of sale.

Required Create an Excel spreadsheet and determine for Doreen Company for the month of May:

1. The estimated cash receipts from accounts receivable collections.

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2. The gross amount of accounts receivable at the end of the month.

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3. The net amount of accounts receivable at the end of the month.

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4. Recalculate requirements (1) and (2) under the assumption that estimated collections in month of sale = 60 percent and in first month following month of sale = 25 percent.

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5. What are the benefits and likely costs of moving to the situation described above in (4)?

Step 1 of 10

1.

Schedule of cash collections in May:

Thus, estimated cash receipts from accounts receivable collection is $ 152,000.