Problem 4-1 The Lineberry Golf Cart Co. sold 7,400 carts this year at an average

Question

Problem 4-1

The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. The firm produced the carts at a 41% cost ratio, which is calculated as cost of goods sold (COGS) divided by revenue. At year end, 55 days of sales remained uncollected in accounts receivable, and three months of inventory was on hand (a month of inventory is 1/12 of the year’s COGS).

The golf cart business is booming and management plans a 8% increase in unit sales despite a 6% price increase. The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collection efforts. It is assumed that these programs will decrease the cost ratio to 40%, lower year-end inventory to two months, and lower year-end receivables to 35 days of sales.

Use the format below to develop this year’s and next year’s revenue and cost of goods sold (COGS) and year ending balance for accounts receivable and inventory. Calculate using a 360-day year and assume sales are evenly distributed over the year. Round your answers for cost ratio in decimals to two decimal places and all other answers to the nearest whole number.

This Year Next Year’s Plan Units Unit Price $    $    Revenue: $    $    Cost ratio COGS: $    $    Days sales in A/R A/R balance: $    $    Months of Inventory on hand Inventory Balance $    $  

Explanation / Answer

Answer:

This Year Next Year’s Plan Units 7400 7992 Unit Price 3000 3180 Revenue: 22200000 25414560 Cost ratio 0.41 0.4 COGS: 9102000 10165824 Days sales in A/R A/R balance: 3391666.667 2470860 Months of Inventory on hand Inventory Balance 2275500 1694304

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