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: July 430,000 $ 960,000 $ 410,000 $ 310,000 217,000 April May June Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense Total selling and administrative expenses 672,000 301,000 287,000 129,000 288,000 123,000 93,000 91,000 53,600 144,600 83,000 40,500 52,000 32,600 84,600 31,000 29,000 123,500 60,000 5,500 143,400 $ 38,400 $ 33,000 Net operating income Includes $13,000 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 $145,000, and March's sales totaled $205,000. 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 % is paid in the following month. Accounts payable at March 31 for inventory purchases during March

Answer 1

Cash Collection for Sales
	Credit Sales	April	May	June	Total
Cash Sales		$          86,000	$       1,92,000	$       82,000
Cash Collections
February	$      1,16,000	$          23,200
March	$      1,64,000	$      1,14,800	$          32,800
April	$      3,44,000	$          34,400	$       2,40,800	$       68,800
May	$      7,68,000		$          76,800	$   5,37,600
June	$      3,28,000			$       32,800
Total Collections		$      2,58,400	$       5,42,400	$   7,21,200	$   15,22,000

Merchandise Purchase Budget
	April	May	June	Total
Cost of Goods Sold	$      3,01,000	$      6,72,000	$       2,87,000	$ 12,60,000
Add : Desired Ending Inventory	$      1,34,400	$          57,400	$          43,400
Total Needs	$      4,35,400	$      7,29,400	$       3,30,400	$ 14,95,200
Less : Beginning Inventory	$          60,200	$      1,34,400	$          57,400
Required Inventory Purchases	$      3,75,200	$      5,95,000	$       2,73,000	$ 12,43,200

		April	May	June	Total
Accounts Payable	$          87,500	$          87,500
April	$      3,75,200	$      1,87,600	$       1,87,600
May	$      5,95,000		$       2,97,500	$   2,97,500
June	$      2,73,000			$   1,36,500
Payments		$      2,75,100	$       4,85,100	$   4,34,000	$   11,94,200

Cash Budget
	April	May	June	Total
Beginning Balance	$          43,000	$          40,800	$          40,500	$       43,000
Cash Collections	$      2,58,400	$      5,42,400	$       7,21,200	$ 15,22,000
Total Cash Available	$      3,01,400	$      5,83,200	$       7,61,700	$ 15,65,000
Cash Disbursements
Purchases	$      2,75,100	$      4,85,100	$       4,34,000	$ 11,94,200
Selling Expenses	$          83,000	$          91,000	$          52,000	$   2,26,000
Administrative expenses	$          27,500	$          40,600	$          19,600	$       87,700
Land Purchases		$          29,000		$       29,000
Dividend Paid	$          21,000			$       21,000
Total Cash Disbursements	$      4,06,600	$      6,45,700	$       5,05,600	$ 15,57,900
Preliminary Ending Balance	$     -1,05,200	$        -62,500	$       2,56,100	$         7,100
Financing
Borrowings	$      1,46,000	$      1,03,000		$   2,49,000
Repayment			$      -2,09,000	$ -2,09,000
Interest			$           -6,440	$       -6,440
Total Financing	$      1,46,000	$      1,03,000	$      -2,15,440	$       33,560
Ending Balance	$          40,800	$          40,500	$          40,660	$       40,660

Administrative expenses paid = Administrative expenses - Depreciation being non cash
Interest = 146000 x 3% + 103000 x 2% = 6440

Answer 2