Computer Assignment II
Accounting Information for Decision Making
University of La Verne
May 3rd , 2010
Date: May 3, 2010
To: Allyn T. Brown, President of Global Electronic Company
From: Anton Saadeh
Subject: Sensitivity Analysis for the 1st Quarter, 20X1
Scope and objective of the work performed
We analyzed the Global Electronic Company’s budget for the first quarter. The analysis is included retained earnings, income statement and balance sheet. From the analysis of the paper, cash flow has changed because of the collections from sales on account during the first quarter. The company collects the cash in three months when the sale is made. The biggest amount was collected in the last month of the payment.
Significance of the sensitivity analysis
Sensitivity analysis is a method used to clarify how different values of an independent variable will impact a particular ...view middle of the document...
Each spreadsheet shows different scenarios from the case.
I came out with my assumptions for this case which is that the economy will be the same; cost of goods, expenses, and companies efficiency will remain constant. as a result, everything should stay constant, other than the different numbers in the cases.
Case 1: What would happen if credit sales were 85% of total sales, rather than 80%?
If we increase the credit sales to 85%, this would lead decrease the cast receipts collected in the first quarter. The total amount of cash sales would decrease by $17, 389 (from $2,634,579 to $2,617,190). Even though we would see an increase in March that would not cover the decrease in January and February.
Case 2: What would happen if 6%, rather than 8%, of the credit sales are collected during the month of sale and 35% of credit sales, rather than 30%, are collected during the month following the month of sale?
If we altered the cash collection sales on account 6%, 35%, and 59% the cash collection in the first month would decrease 2% and second month sales collection would increase 5%.
Case 3: What would happen if the equipment purchases required a $325,000 investment, rather than $300,000?
If equipment purchase increase to $325,000, this would increase the short term borrowing by $25,000. additionally, interest payment would increase by $271 and this would cause us an additional $271 income loss.
Case 4: What would happen if the minimum cash balance was $70,000, rather than $55,000?
If cash balance was increased to $70,000, this would lead to an increase in the short term borrowing. furthermore, company would need to pay additional $163 for interest ( $4,263 - $4,100).
We advise that Global Electronic Company should try to match up with the cash disbursement budget and cash receipt budget because this can make the company’s cash balance positive. Also, the company can think about increasing the cash collections from sales on account. This can help the firm to have more cash in the first and second month of the first quarter. Since the company net income is a negative number, the company must consider increasing their income to positive number because negative income can lead the firm to bankruptcy. As a result, they must stay away from having negative net income.