Retro Vinyl Inc. Case Summary: Company, Sales, and Cash Collection Assumptions

Company Background

Retro Vinyl Inc. (RV) produces bespoke cabinetry for vinyl record players in Santa Fe, New Mexico, using heart of pine wood. The owners bring 30 years of remodeling and furniture design experience and participate directly in design, drafting, and project management. The company launched in August 2020 and planned to begin production and distribution in the first quarter of 2023.

Initial financing includes one partner contributing $500,000 cash in exchange for stock and another contributing land and a building. The land has a market value of $80,000. The building has a historical cost of $520,000 and accumulated depreciation of $100,000.

Sales Outlook

RV secured a contract with a national furniture store for 200 units per quarter during 2023. Management also expects additional demand from local and regional advertising.

Projected sales in cabinets are:

• Q1 2023: 200 units
• Q2 2023: 210 units
• Q3 2023: 225 units
• Q4 2023: 245 units
• Q1 2024 planning figure: 270 units

Each cabinet has a sales price of $850.

Credit Sales and Collection Pattern

All sales are made on credit with no discounts and are due in 30 days. For budgeting purposes, owners expect collections to follow a pattern based on prior furniture-industry experience:

• 75% of a quarter’s sales are collected by the end of that same quarter.
• 20% are collected in the following quarter.
• 5% are collected in the second quarter following the sale.

Bad debts are considered negligible and are ignored in the case assumptions.

Cash Management Policies

Management requires a minimum ending cash balance of $10,000 each quarter. To maintain this balance, the company has access to a line of credit from First National Bank of New Mexico. Borrowings are made as needed, and interest on all borrowings is paid at the end of the fiscal year rather than in the quarter of borrowing.

RV also plans to declare and pay a quarterly dividend of $12,000.

Why These Assumptions Matter for the Master Budget

These case facts drive the sales budget, expected cash collections schedule, cash budget, financing needs, and dividend planning. Because all sales are on credit and collections extend across multiple quarters, sales revenue and cash inflows will not occur in the same pattern. Likewise, the minimum cash requirement and line of credit policy affect when external financing is needed.