Intercoastal Electronics Budgeting Decision

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To:Beth Davies-Lowry, President of Intercoastal Electronics Company


Date:February 20, 2011

Re:Budgeting Impacting Company’s Financial Statements

Scope and Objective

Intercoastal Electronics Company is excited about the upcoming year, and is ready to acquire new inventory equipment in order to process a streamline operation for their small, rapidly growing consumer electronics products base. The acquisition of new assets within the new year, is extremely essential to planning a budget, and will require the participation of department’s managers, for it to be successful.

In conducting my budgeting plan, I looked into the Company’s financial data for the first quarter of 2011, and related year-end data of 2010. The data involved were; sales budget, cash receipts budget, purchase budget, cash disbursement budget, cash budget, analysis of short term financing, and the preparation of the Company’s first quarter 2011 financial statements. By performing a sensitivity analysis, I am able to determine the impact of the Company’s profitability, and identify how variable changes affect each budget. The Company’s management team provided three scenarios that illustrate my objective.

Significance of the Sensitivity Analysis

A Sensitivity analysis is a technique that addresses how changes in variables affect the uncertainty of a given set of assumptions. The results will illustrate how the analysis determines the estimates, upon which it is based. To better demonstrate how the analysis will work for Intercoastal Electronics Company for March 31, 2011, I have conducted three separate analyses that impact the Company’s profitability:

1. Case 1 – Credit Sales changed to 65% of total sales vs. 75%; and Inventory at the end of each month to equal 40% of next month’s projected cost of goods sold vs. 50%.

Analyzing the sales budget, the variables affected...
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