Lotus Coffee imports raw specialty coffee beans from growers in Dak Lak, a province of Vietnam. Specialty coffee is considered to be Arabica coffees highest standard. To be recognized as specialty coffee, the beans must undergo strict evaluation; the growers must fully comply with the prescribed production process, from the stage of cultivation, to harvesting, preliminary treatment, preservation, etc. Once receiving the coffee beans shipment, Lotus Coffee implements strict standards in the roasting process. It then packages these fabulous beans for sale to consumers across Canada. Lotus Coffee packages all its beans into 454-gram packages. Most of Lotus Coffees customers are specialty coffee shops. However, it does have a small retail space where customers may come to purchase roasted coffee beans for home use. About 20% of its total sales are paid in cash, and the remaining 80% is billed to coffee shops. Of the sales billed to coffee shops, 60% are collected within the same quarter and the remaining is collected in the following quarter. All expenses are paid the month they are incurred. The companys year-end is September 30th. Images are used with permission from www.quocloccoffee.com ACCT-1071 Accounting Fundamentals Group case study #2 Fall 2021 Page 2 Larry provided the following information 2023 Operating Projections

Q1 Q2 Q3 Q4 Oct-Dec Jan-Mar Apr-Jun Jul-Sep Expected package sales 60,000 50,000 40,000 40,000 Unit selling price $10 $10 $10 $10 Staff costs Estimated to be 20% of sales Operating Expenses Estimated to be 30% of sales Depreciation expense $11,000 $11,000 $11,000 $11,000 Raw material cost per kilogram $6.60 $6.60 $7.70 $7.70

Lotus purchases its coffee beans in kilogram quantities (1000 grams = 1 kilogram). Shipments from Vietnam can be unreliable, so Larry prefers to have as much raw material (unroasted beans) on hand as possible. He likes to maintain a balance of raw materials equal to approximately 60% of next quarter sales. All the roasted beans are sold in the same quarter they are made to maintain freshness. He expects sales for the first quarter in 2024 to be 65,000 packages. Larry plans to replace the roasting equipment in May 2023 with a brand-new machine that will produce even more aromatic coffee beans starting in the next fiscal year. The expected cost is approximately $100,000 and will be paid for in cash. The company needs to repay $12,000 per month on the long-term non-interest-bearing loan from Larrys father. In addition, he pays himself dividends of $15,000 per month in lieu of salary. Lotus Coffee has a $250,000 line of credit that can be drawn from for short-term financing. Interest is paid quarterly, and it is calculated as 4.5% per year on the outstanding balance at the Images are used with permission from end of the previous quarter. The line of credit balance is zero at the beginning of fiscal 2023. Any excess cash is immediately used to pay down the line of credit. Larry wants to see a complete sales budget, direct materials budget shown in kilograms and total cost, income statement budget, schedule of cash collections and cash budget for 2023 each by quarter and in total.