Question

Prepare Schedule of cash disbursements for merchandise purchases and for selling and administrative expenses for each month of april, may, june

The following actual and budgeted sales relate to AgriTech Company, a distributor of agricultural products located somewhere in the Midwest. March (actual) April May. June July $50,000 60,000 72,000 90,000 48,000 The company's top executives intend to have 25% of sales as gross margin. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The company's inventory manager informs that each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. In addition, the following relevant information is also provided. a. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets) b. Equipment costing $1,500 will be purchased for cash in April c. The company must maintain a minimum cash balance of $4,000. An open line of credit is available at a local bank. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. The monthly interest rate is 1%. Interest must be paid at the end of each month based on the total loans outstanding for that month A snapshot from AgriTech Company's balance sheet as of March 31 is as follows Cash..... Accounts receivable. Inventory Building and equipment, net . Accounts payable Common shares $ 8,000 20,000 36,000 120,000 21,750 150,000 12,250 Retained earnings The accounts receivable at March 31 are a result of March credit sales. The accounts payable at March 31 are the result of March purchases of inventory

Answer 1

Requirement 1: Prepare the schedule of cash disbursements for merchandise purchases as follows

Particulars	April	May	June	Quarter
Beginning accounts payable	$21,750			$21,750
April purchases*	$26,100	$26,100		$52,200
May purchases**		$32,400	$32,400	$64,800
June purchases***			$21,150	$21,150
Cash disbursements for inventory	$47,850	$58,500	$53,550	$159,900

*$26,100 ($52,200 ÷ 2) || **$32,400 ($64,800 ÷ 2) || ***$21,150 ($42,300 ÷ 2)

Notes: Prepare merchandise inventory purchase schedule as follows

Particulars	April	May	June	Quarter	July
Expected Sales Revenue	$60,000	$72,000	$90,000	$222,000	$48,000
Deduct: Gross Margin	$15,000	$18,000	$22,500	$55,500	$12,000
Cost of Goods Sold	$45,000	$54,000	$67,500	$166,500	$36,000
Add: Desired ending inventory	$43,200	$54,000	$28,800	$28,800
Total inventory required	$88,200	$108,000	$96,300	$195,300
Deduct: Beginning balance	$36,000	$43,200	$54,000	$36,000
Inventory purchases	$52,200	$64,800	$42,300	$159,300

Gross margin = April : ($60,000 × 25%) || May : ($72,000 × 25%) || June : ($90,000 × 25%)

Desired ending inventory = April : ($54,000 × 80%) || May : ($67,500 × 80%) || June : ($36,000 × 80%)

Requirement 2: Prepare cash disbursements for selling and administrative expenses

Particulars	April	May	June	Quarter
Commissions	$7,200	$8,640	$10,800	$26,640
Rent	$2,500	$2,500	$2,500	$7,500
Other expenses	$3,600	$4,320	$5,400	$13,320
Total	$13,300	$15,460	$18,700	$47,460

Commission = April : ($60,000 × 12%) || May : ($72,000 × 12%) || June : ($90,000 × 12%)

Other Expenses = April : ($60,000 × 6%) || May : ($72,000 × 6%) || June : ($90,000 × 6%)