You have been asked to simulate the cash inflows to a toy company for the next year. Monthly sales are independent random variables. Mean sales for the months January through March and October through December are $80,000, and mean sales for the months April through September are $120,000. The standard deviation of each month’s sales is 20% of the month’s mean sales. Model the method used to collect monthly sales as follows:
• During each month a certain fraction of new sales will be collected. All new sales not collected become one month overdue.
• During each month a certain fraction of one-month overdue sales is collected. The remainder becomes two months overdue.
• During each month a certain fraction of two-month overdue sales is collected. The remainder is written off as bad debt.
You are given the information in the file S16_41.xlsx from past months. Using this information, build a simulation model that generates the total cash inflow for each month. Develop a simple forecasting model and build the error of your forecasting model into the simulation. Assuming that there are $120,000 of one month-old sales outstanding and $140,000 of two month-old sales outstanding during January, you are 95% sure that total cash inflow for the year will be between what two values?