Assume we\'re at the end of \"this year\" planning\'next year\'s\" financial sta
ID: 2741924 • Letter: A
Question
Assume we're at the end of "this year" planning'next year's" financial statements. Calculate the following using indirect planning assumptions as indicated. Use a 360-day year for your calculations. Sales are forecast to be $58, 400, 000. Management wants to plan for a 42-day ACP next year. What ending receivables balance should be planned for next year? Round your answer to the nearest dollar. What ending inventory should be planned if revenue is expected to be $457, 000 and the cost ratio is 53% (cost of goods sold as a percentage of revenue) and management wants to forecast an Inventory turnover of 5X. Normal credit terms from suppliers request payment within 30 days. In an effort to conserve cash, management has decided to pay in 50 days. Nearly all payables come from purchases of inventory. Materials make up 60% of the cost of goods sold. Next year's revenue is forecast to be $378 million. The firm's cost ratio is expected to be 56%. What figure should be included in next year's ending balance sheet for accounts payable? An answer of $1.2 million should be entered as 1, 200, 000.Explanation / Answer
Answer 1.
Average Collection Period = 360*Account receivable / Sales
42 = 360 * Account receivable / 58,400,000
Account receivable = $6,813,333.33
Answer 2.
Cost of Goods sold = 53%*457,000 = $242,210
Inventory Turnover = cost of goods sold / inventory
5 = 242,210 / Inventory
Inventory = $48,442
Answer 3.
Cost of Goods Sold (COGS) = Revenue x Cost ratio = $378M×.56 = $211.7M
The material content of COGS = $211.7M×.60 = $127.0M.
This material accounts for the bulk of the firm’s credit purchases, which generate payables. Hence $127.0M will pass through Accounts Payable next year.