The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. Fifty days of sales remained uncollected in accounts receivable at the end of the year. The firm produced the carts at a 42% cost ratio (COGS/Revenue) and had three months of inventory on hand at year end (3/12 of the year’s COGS).
The golf business is booming and management plans a 10% increase in unit sales despite a 5% price increase. The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collections 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 40 days of sales.
Compute Lineberry’s revenue, COGS (cost of goods sold), and gross margin as well as ending receivables and inventory for this year’s and next year’s plan. Calculate using a 360-day year and assume sales are evenly distributed over the year.
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