Nordic Company A Merchandising Company Prepares Its M 972689

Nordic Company A Merchandising Company Prepares Its Master Budget On

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in the preparation of the master budget for the second quarter. As of March 31, the company’s balance sheet showed various account balances, including cash, accounts receivable, inventory, buildings and equipment, accounts payable, capital stock, and retained earnings. The company’s actual sales for March and projected sales for April through July are provided, along with details about sales composition, collections, expenses, inventory policies, equipment purchases, dividends, and borrowing arrangements. The task is to complete the schedule of expected cash collections for April, May, and June, based on the given data and formulas, to assist in constructing the company's master budget for the second quarter.

Paper For Above instruction

The preparation of a master budget for a company like Nordic Company is a fundamental process in financial planning and control. It involves projecting various financial statements and schedules that facilitate the management's decision-making and ensure operational and financial stability. The schedule of expected cash collections is a critical component of the master budget, as it influences cash management, liquidity planning, and borrowing decisions.

The schedule of expected cash collections delineates the timing and amount of cash inflows from sales, which is vital for forecasting the company's cash position during the upcoming months. For Nordic Company, the sales data for March through July, together with the sales collection policies, form the basis for these projections.

Sales projections for April, May, and June are $82,000, $92,000, and $97,000, respectively. The historical data indicates that 20% of sales are paid in cash immediately, while 80% are on credit, with collections for credit sales occurring in the month following the sale. Therefore, the cash collections for each month will comprise the cash sales made during that month plus the collections from previous month’s credit sales.

Starting with April, the cash sales are 20% of April sales: 0.20 x $82,000 = $16,400. Since 80% of April’s sales are on credit, these will be collected in May, based on the collection policy. March credit sales, which are $62,000, are already collected in March, as indicated. For May, cash sales are 20% of $92,000 = $18,400, and credit sales from April ($82,000), which will be collected in May, amount to $65,600 (80% of April’s sales). For June, cash sales are 20% of $97,000 = $19,400, and collections from May’s credit sales ($92,000) will be $73,600.

In summary, the schedule of expected cash collections is constructed by combining the cash sales of the month and the collections from previous month’s credit sales. This approach aligns with the company’s collection policy and the provided sales data.

Expected Cash Collections Schedule

These projections assist management in understanding the cash inflow trajectory during the quarter, enabling effective planning of operational needs, financing, and investments. Moreover, they serve as a foundation for establishing the company's liquidity position, ensuring that minimum cash balance requirements are maintained and that borrowing needs are accurately forecasted.

In conclusion, the schedule of expected cash collections for the second quarter hinges on the correct application of collection policies to sales data and an understanding of the timing of collections for credit sales. Accurate forecasts of cash receipts are essential to develop a robust master budget, which in turn supports the overall strategic and operational objectives of Nordic Company.

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