Mitchell Wright Group expects to generate sales of $5,950,000 for fiscal 2018; sales were $3,450,000 in fiscal 2017.Assume the following figures for the fiscal year ending 2017: cash $70,000; accounts receivable $250,000; inventory $400,000; net fixed assets $520,000; accounts payable $235,000; and accruals $155,000.Use the percentage-of-sales method to forecast cash for the fiscal year ending 2018.
A)$120,725
B)$75,003
C)$216,418
D)$319,604

Question

Quizplus · Accepted Answer

1. Calculate the increase in sales from fiscal 2017 to fiscal 2018:
$5,950,000 - $3,450,000 = $2,500,000
2. Calculate the expected values of cash, receivables, inventory, payables, and accruals as a percentage of sales using the figures for fiscal 2017:
Cash: $70,000 ÷ $3,450,000 = 2.03%
Accounts receivable: $250,000 ÷ $3,450,000 = 7.25%
Inventory: $400,000 ÷ $3,450,000 = 11.59%
Accounts payable: $235,000 ÷ $3,450,000 = 6.81%
Accruals: $155,000 ÷ $3,450,000 = 4.49%
3. Project the values of cash, receivables, inventory, payables, and accruals for fiscal 2018 using the percentages calculated in step 2:
Cash: 2.03% x $5,950,000 = $120,725
4. The answer is A) $120,725.

Mitchell Wright Group Expects to Generate Sales of $5,950,000 for Fiscal