SCENARIO #2: MODIFY CASH FLOW The following planning assumptions should be used in your MODIFY CASH FLOW
Question:
SCENARIO #2: MODIFY CASH FLOW The following planning assumptions should be used in your MODIFY CASH FLOW SCENARIO Scenario Background: IBC wants to improve its cash flow, and wants to understand the impact of more favorable credit terms with customers. The company has decided to offer 5% sales discounts to all cash customers and 2% sales discounts to credit customers who pay in the same quarter as purchase. The company believes the incentives will shift the mix of cash/credit purchases. These changes would be effective Jan 1, 2019. The company wants to understand the impact of this proposal. Using the Spreadshe you have developed in Scenario #1 and the new information below, show the impact on the schedules and pro forma statements. Then, state definitively your recommendation as it relates to this new scenario. Should the company offer sales discounts? Revised Assumptions for Cash Collections from Customers Customers pay 70% in cash, 30% credit 50% of credit sales will be collected in the current quarter; the remaining will be collected in the following quarter; only assume credit customers paying in the same quarter as purchase take the 2% discount All Cash customers receive a 5% discount Uncollectible accounts are negligible and thus ignored Additional Operating Budget (through EBIT) Assumptions Note, all forecasted sales discounts should be subtracted from Gross Revenue on the operating budget to arrive at Net Revenue.
Managerial accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer