Question 7 (17 marks) Lirag is a textile manufacturing company in eastem Tenness

Question

Question 7 (17 marks) Lirag is a textile manufacturing company in eastem Tennessee. Every year the company prepares a complete set of budgets. The budgeting process begins with information supplied by the Sales and Marketing department. The balance in Accounts Receivable at the beginning of the year was $900,000. The marketing department has predicted unit sales to be as follows: January February March ,480,000 sq. yds. 2,120,000 sq. yds. 1,300,000 sq. yds. Selling price for the fabric is $2.00 per square yard. Cash sales account for 25% of sales. Collections on account (non-cash sales charged to accounts receivable) are received 60% in the month of the sale and 40% in the following month. Required (a) Prepare a Sales budget for Lirag for the first three months of the year. (Show (b) Prepare a Schedule of Expected Cash Collections for the first three months. (11 totals for the quarter.) (6 marks) marks)

Explanation / Answer

SALES BUDGET Jan Feb March QUARTER Budgeted Sales units 1,480,000 2,120,000 1,300,000 4,900,000 Selling price per unit 2 2 2 2 Total Sales 2,960,000 4,240,000 2,600,000 9,800,000 EXPECTED CASH COLLECTIONS JAN FEB MARCH QUARTER Cash sales 740,000 1060000 650000 2,450,000 Accounts receivable collected 900,000 900,000 Jan Month Sales 1332000 888000 2,220,000 Feb Month Sales 1,908,000 1,272,000 3,180,000 March Month sales 1170000 1,170,000 Total Cash Collections 2,972,000 3,856,000 3,092,000 9,920,000

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