Budgetinq Quiz Yourself #2

When we tell Charlie that he'll have to shift the 50/50 split on cash and credit sales to 80/20, he looks a bit worried. After thinking for a few minutes, he suggests that he cut back on his inventory so that he bought only enough for the current month. if Charlie were to buy lumber month-to-month only, what would be the impact on ending cash? Hold the cash/credit sales split at 50/50 for now. There are two ways to find this. What are they?

Answer

So this is not enough to get Charlie over the $700 minimum. Now assume that he keeps the ending inventory at zero AND improve the ratio of cash to credit sales. What does the ratio have to go to in order to have the $700 minimum balance?

Answer

A little tinkering with the spreadsheet reveals that a shift in the cash to credit ratio from 50:50 to 60:40 will increase Charlie's ending cash to exactly $700.

Copyright © 2004 Gerald M. Myers. All rights reserved. This site has been developed as aid to instructors and students in managerial accounting. The scenarios contained herein are not intended to reflect effective or ineffective handling of managerial situations. Any resemblance to existing organizations is purely coincidental.

Last modified: August 03, 2005