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 $ 620,000 434,000 186,000 May $1,120,000 784,000 336,000 June $ 580,000 406,000 174,000 July $ 480,000 336,000 144,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income 115,000 49,000 164,000 $ 22,000 $ 107,000 69,000 48,000 66,400 42,800 46,000 173,400 111,800 94,000 162,600 $ 62,200 $ 50,000 *Includes $30,000 of depreciation each month. b. Sales are 20% for cash and 80% on account. c. Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February's sales totaled $270,000, and March's sales totaled $285,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $123,200. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $86,800.

Answer 1

1.

Schedule of Expected Cash Collections
	April	May	June	Quarter
Cash Sales	$ 124,000	$ 224,000	$ 116,000	$ 464,000
Sales on Account
February	43,200			43,200
March	159,600	45,600		205,200
April	124,000	322,400	49,600	496,000
May		224,000	582,400	806,400
June			116,000	116,000
Total Cash Collections	$ 450,800	$ 816,000	$ 864,000	$ 2,130,800

2. a.

Merchandise Purchases Budget
	April	May	June	Quarter
Budgeted Cost of Goods Sold	$ 434,000	$ 784,000	$ 406,000	$ 1,624,000
Add: Desired Ending Inventory	117,600	60,900	50,400	50,400
Total needs	$ 551,600	$ 844,900	$ 456,400	$ 1,674,400
Less: Beginning Inventory	86,800	117,600	60,900	86,800
Budgeted Merchandise Purchases	$ 464,800	$ 727,300	$ 395,500	$ 1,587,600

b.

Schedule of Expected Cash Disbursements for Merchandise Purchases
	April	May	June	Quarter
March purchases	$ 123,200			$ 123,200
April purchases	232,400	$ 232,400		464,800
May purchases		363,650	363,650	727,300
June purchases			197,750	197,750
Total Cash Disbursements	$ 355,600	$ 596,050	$ 561,400	$ 1,513,050

3.

Garden Sales Inc. Cash Budget For the quarter ended June 30
	April	May	June	Quarter
Beginning cash balance	$ 59,000	$ 40,200	$ 71,750	$ 59,000
Add: Collection from customers	450,800	816,000	864,000	2,130,800
Total cash available	509,800	856,200	935,750	2,189,800
Less: Cash disbursements
Merchandise purchases	$ 355,600	$ 596,050	$ 561,400	$ 1,513,050
Selling expenses	115,000	107,000	69,000	291,000
Administrative Expenses	19,000	36,400	12,800	68,200
Land purchases	0	45,000	0	45,000
Dividends	37,000	0	0	37,000
Total Cash Disbursements	$ 526,600	$ 784,450	$ 643,200	$ 1,954,250
Excess ( deficiency ) of cash	(16,800)	71,750	292,550	235,550
Financing
Borrowing	57,000			57,000
Repayment			57,000	(57,000)
Interest			1,710	(1,710)
Total financing	57,000
Ending cash balance	$ 40,200	$ 71,750	$ 233,840	$ 233,840