Limelite Ltd, Projects Sales for Its First Three Months of Operation

question 53

Multiple Choice

Limelite Ltd, projects sales for its first three months of operation as follows: $$\begin{array} { | l | l | l | l | } \hline & \text { Jaruary } & \text { February } & \text { March } \\\hline \text { Credit Sales } & \$ 150,000 & \$ 188,000 & \$ 176,000 \\\hline \text { Cash Sales } & \$ 60,000 & \$ 50,000 & \$ 55,000 \\\hline & \$ 210,000 & \$ 238,000 & \$ 231,000 \\\hline\end{array}$$ Inventory on 1^st January is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
What are the anticipated cash receipts for February?

• A) $107,500
• B) $121,250
• C) $71,250
• D) $238,000

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Definitions:

Raw Materials Inventory

The total cost of all the components needed to manufacture a product that a company has in stock.

Cost of Direct Materials

Refers to the total cost of raw materials that are directly used in the production of goods.

Factory Depreciation

The process of allocating the cost of a physical factory plant and its equipment over its useful life, reflecting wear and tear over time.

Total Raw Materials

The sum of all raw materials that are available for use in the production process, including both those already in process and those in stock waiting to be used.