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 May June July $ 550,000 $ 750,000 $ 450,000 $ 350,000 385,000 525,000 315,000 245,000 165,000225,000 135, 000105,000 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 Collections
	April	May	June	Quarter
Cash sales	($550000*20%)= $110000	($750000*20%)= $150000	($450000*20%)= $90000	$350000
Sales on account:
February	($165000*80%*10%)= 13200			13200
March	(225000*80%*80%)= 144000	(225000*80%*10%)= 18000		162000
April	(550000*80%*10%)= 44000	(550000*80%*80%)= 352000	(550000*80%*10%)= 44000	440000
May		(750000*80%*10%)= 60000	(750000*80%*80%)= 480000	540000
June			(450000*80%*10%)= 36000	36000
Total cash	$311200	$580000	$650000	$1541200

2A)

Merchandise Purchases Budget
	April	May	June
Budgeted cost of goods sold	$385000	$525000	$315000
Add: Desired ending inventory	(525000*20%)= 105000	(315000*20%)= 63000	(245000*20%)= 49000
Total needs	490000	588000	364000
Less: Beginning inventory	(77000)	(105000)	(63000)
Required inventory purchases	$413000	$483000	$301000