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 Sales Month Sales $907,500 $1,507,500 January July $1,004,000 $1,507,500 February August $907,500 $1,609,100 March September $1,609,100 $1,158,500 April October $1,251,000 $1,507,500 November Мay $1,400,500 $1,703,300 December June 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. the year. A breakdown of the expenses follows. All expenditu res are paid monthly General and administrative expenses are projected to be $1,566,800 throughout the year, with exception of property taxes each quarter. equal installment the are paid Salaries and fringe benefits 322,400 375,800 136,800 Advertising Property taxes Insurance 197,600 184,300 Utilities Depreciation 349,900 $1,566,800 Total Operating income for the first quarter of the coming year is projected to be $324,300. Marigold is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter. Marigold maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $57,700.

Answer 1

	March	April	May	June	July
Sales	907500	1158500	1251000	1400500	1507500
Cost of goods sold ( 40% of sales )	363000	463400	500400	560200	603000

	March	April	May	June
Purchases :
30% of current month's cost of goods sold	108900	139020	150120	168060
70% of next month's cost of goods sold	324380	350280	392140	422100
Total purchases	433280	489300	542260	590160

Cash Payments Budget
	April	May	June
March purchases	108320 [ 433280*25% ]
April purchases	366975 [ 489300*75% ]	122325 [ 489300*25% ]
May purchases		406695 [ 542260*75% ]	135565 [ 542260*25% ]
June purchases			442620 [ 590160*75% ]
	475295	529020	578185

Accounts payable balance at the end of second quarter of 2015 = June's purchases * 25% = 590160 * 25%

147540