The following information about Douglas Corp.\'s Accounts Receivable and Sales a

Question

The following information about Douglas Corp.'s Accounts Receivable and Sales are presented below: Year 2015-Beginning Balance of A/R = $791M Year 2015 -Ending Balance of A/R = $807M Year 2015 - Sales = $3,002M Assumptions: Sales growth will be equal to 6% per year A/R turnover will stay constant throughout the forecast period Using this information, forecast Douglas Corp.'s the growth in Accounts Receivable for years 2016-2020. What problem does a constant A/R turnover assumption cause? Provide a solution to the problem caused by a constant A/R turnover assumption.

Explanation / Answer

What problem does a constant A/R turnover assumption cause?

The constant A/R turnover assumption results in the sawtooth forecasting problem

C.Provide a solution to the problem caused by a constant A/R turnover assumption?

2015 2016 2017 2018 2019 2020 Sales $3,002 3,182(3002*(1.06) $3,373 $3,575 $3,790 $4,017 Beg A/r $791 807 887 909 995 1023 Ending A/r 807 887 909 995 1023 1116 Sales growth 6% A/R turnover 3.76 Yearly growth 9.90% 2.48% 9.46% 2.81% 9.09%

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