Question

Problem 5-35 Marigold Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm's marketing director, has completed the following sales forecast. Month January February March April Sales $907,500 $1,004,000 $907,500 $1,158,500 $1,251,000 $1,400,500 Month July August September October Sales $1,507,500 $1,507,500 $1,609,100 $1,609,100 $1,507,500 $1,703,300 May June December Phillip Smith, an accountant in the planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information. • All sales are made on credit. . Marigold's excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale. . Cost of goods sold, Marigold's largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased. • All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase. Hourly wages and fringe benefits, estimated at 30% of the current month's sales, are paid in the month incurred. • General and administrative expenses are projected to be $1,566,800 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter. Salaries and fringe benefits Advertising Property taxes Insurance Utilities Depreciation Total $ 322,400 375,800 136,800 197,600 184,300 349,900 $ 1,566,800

Answer 1

ANSWER

Cash Budget

	April	May	June	Quarter
Beginning Cash Balance	$57,700	$51,226	$50,197	$57,700
Cash Collection from Sales	946100	1058100	1214000	$3,218,200
Total Cash Available	$1,003,800	$1,109,326	$1,264,197	$3,275,900
Less Cash Disbursement
Inventory	475295	529020	578185	1582500
Wages	347550	375300	420150	1143000
Salaries	26867	26867	26867	80601
Advertising	31317	31317	31317	93951
Property Tax	0	0	34200	34200
Insurnce	16467	16467	16467	49401
Utilities	15358	15358	15358	46074
Income tax	129720	0	0	129720
Total Cash Disbursement	($1,042,574)	($994,329)	($1,122,544)	($3,159,447)
Excess or deficiency of cash available	($38,774)	$114,997	$141,653	$116,453
Minimum Cash Balance	50,000	50,000	50,000
Excess cash needed	($88,774)	0	0
Financing
Borrowing	$90,000	0	0	$90,000
Interest	0	$1800	$270	$2070
Repayment	0	$63,000	$27,000	$90,000
Total Financing	$90,000	($64,800)	($27,270)	($2070)
Ending Cash Balance	$51,226	$50,197	$114,383	$114,383

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