Chapter4
Discussio
Questio
s
41
Whatarethebasicbe
efitsa
dpurposesofdevelopi
gproformastateme
tsa
d
acashbudget
Theproformafi
a
cialstateme
tsa
dcashbudgete
ablethefirmtodetermi
eitsfuturelevelofasset
eedsa
dtheassociatedfi
a
ci
gthatwillberequiredFurthermoreo
eca
trackactualeve
tsagai
sttheprojectio
sBa
kersa
dotherle
dersalsousethesefi
a
cialstateme
tsasaguidei
creditdecisio
s
42
Explai
howthecollectio
sa
dpurchasesschedulesarerelatedtotheborrowi
g

eedsofthecorporatio

Thecollectio
sa
dpurchaseschedulesmeasurethespeedatwhichreceivablesarecollecteda
dpurchasesarepaidTotheexte
tcollectio
sdo
otcoverpurchasi
gcostsa
dotherfi
a
cialrequireme
tsthefirmmustlooktoborrowi
gtocoverthedeficit
43
Withi
flatio
whataretheimplicatio
sofusi
gLIFOa
dFIFOi
ve
tory
methodsHowdotheyaffectthecostofgoodssold
LIFOi
ve
toryvaluatio
assumesthelatestpurchasedi
ve
torybecomespartofthecostofgoodssoldwhiletheFIFOmethodassig
si
ve
toryitemsthatwerepurchasedfirsttothecostofgoodssoldI
a
i
flatio
arye
viro
me
ttheLIFOmethodwillresulti
ahighercostofgoodssoldfigurea
do
ethatmoreaccuratelymatchesthesalesdollarsrecordedatcurre
tdollars
44
Explai
therelatio
shipbetwee
i
ve
torytur
overa
dpurchasi
g
eeds
Themorerapidthetur
overofi
ve
torythegreaterthe
eedforpurchasea
dreplaceme
tRapidlytur
i
gi
ve
torymakesforsomewhatgreatereasei
foreseei
gfuturerequireme
tsa
dreducesthecostofcarryi
gi
ve
tory
45
Rapidcorporategrowthi
salesa
dprofitsca
causefi
a
ci
gproblems
Elaborateo
thisstateme
t
Rapidgrowthi
salesa
dprofitsisofte
associatedwithrapidgrowthi
assetcommitme
tA100000i
creasei
salesmaycausea50000i
creasei
assetswithperhapso
ly10000ofthe
ewfi
a
ci
gcomi
gfromprofitsItisveryseldomthati
creme
talprofitsfromsalesexpa
sio
ca
meet
ewfi
a
ci
g
eeds
S113
Copyright2005byTheMcGrawHillCompa
iesI
c
f46
Discusstheadva
tagea
ddisadva
tageoflevelproductio
schedulesi
firms
withcyclicalsales
Levelproductio
i
acyclicali
dustryhastheadva
tageofallowi
gforthemai
te
a
ceofastableworkforcea
dreduci
gi
efficie
ciescausedbyshutti
gdow
productio
duri
gslowperiodsa
daccelerati
gworkduri
gcrashproductio
periodsAmajordrawbackisthatalargestockofi
ve
torymaybeaccumulatedduri
gtheslowsalesperiodThisi
ve
torymaybeexpe
sivetofi
a
cewitha
associatedda
gerofobsolesce
ce
47
Whatco
ditio
swouldhelpmakeaperce
tofsalesforecastalmostasaccurate
asproformafi
a
cialstateme
tsa
dcashbudgets
Theperce
tofsalesforecastiso
lyasgoodasthefu
ctio
alrelatio
shipofassetsa
dliabilitiestosalesTotheexte
tthatpastrelatio
shr