Question

Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for April-July are: April $ 550,000 385,000 165,000 May $ 750,000 525,000 225,000 June $ 450,000 315,000 135,000 July $ 350,000 245,000 105,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 75,000 42,500 117,500 $ 47,500 95,000 56,800 151,800 $ 73,200 56,000 35,000 91,000 $ 44,000 35,000 33,000 68,000 $ 37,000 *Includes $17,000 of depreciation each month.

Answer 1

1)			Schedule of Expected cash collection
			April	May	June	Quarter
Cash sales			110000	150000	90000	350000
Sales on account
February	(165000*80%*10%)		13200			13200
March	(225000*80%*80%;10%)		144000	18000		162000
April	(440000*10%;80%;10%)		44000	352000	44000	440000
May	(600000*10%;80%)			60000	480000	540000
June	(360000*10%)				36000	36000
Total cash collections			311200	580000	650000	1541200
2)		Merchandise purchase budget
			April	May	June
Budgeted cost of goods sold			385,000	525,000	315,000
Add: ending inventory			105000	63000	49000
Total needs			490,000	588,000	364,000
less:Beginning inventory			77,000	105,000	63,000
Required inventory purchases			413,000	483,000	301,000
b)	Schedule of Expected Cash Disbursements for Merchandise purchase
			April	May	June	Quarter
Beginning accounts payable			101,500			101,500
April purchases			206500	206500		413000
May purchases				241500	241500	483000
June purchases					150500	150500
total cash disbursements			308,000	448000	392000	1,148,000
3)			Cash budget
				April	May	June	Quarter
Beginning cash balance				47,000	40,700	40,900	47,000
Add collections from customers				311200	580000	650000	1541200
total cash available				358,200	620700	690900	1588200
less cash Disbursements
purchase of inventory				308,000	448000	392000	1,148,000
selling expenses				75,000	95,000	56,000	226,000
administrative expenses				25500	39800	18000	83300
land purchases				0	33,000	0	33000
dividends paid				25,000	0	0	25,000
total cash disbursements				433,500	615800	466000	1,515,300
Excess(Deficiency)of cash available				-75,300	4900	224900	72,900
Financing
Borrowing				116,000	36,000	0	152,000
Repayment				0	0	-152000	-152000
interest				0	0	-4,200	-4200
total financing				116,000	36,000	-156200	-4,200
ending cash balance				40,700	40,900	68700	68,700
		interest = 116000*1%*3			3480
			36000*1%*2		720
					4200