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 $ 590,000 $ 790,000 $ 490,000 $390,000 413,000 553,000 343, 000273,000 177,000 237,000 147,000 117,000 Sales Cost of goods sold Gross margin Selling and administrative expenses Selling expense Administrative expense Total selling and administrative expenses Net operating income 80,000 44,500 124,500 52,500 99,000 60,000 159.000 78,000 60,000 3 7,400 97,400 $49,600 39,000 37,000 76.000 41,000 $ $ $ "Includes $22,000 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: 80% collected in the first month following the month of sale, and the remaining 10% collected in the second month following the month of sale. February's sales totaled $205,000, and March's sales totaled $245,000. 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 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $109,900. e. Each month's ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $82,600. f. Dividends of $29,000 will be declared and paid in April. g. Land costing $37,000 will be purchased for cash in May. h. The cash balance at March 31 is $51,000; the company must maintain a cash balance of at least $40,000 at the end of each month I. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the < Prev 7 of 9 !!! Next >

Answer 1

1)

Schedule of expected cash collection
	April	May	June	Quarter
Total Sales	590,000	790,000	490,000	2,320,000
Cash Sales	118,000	158,000	98,000	374,000
Sales on Account	472,000	632,000	392,000	1,496,000
February	16,400			16,400
March	156,800	19,600		176,400
April	47,200	377,600	47,200	472,000
May		63,200	505,600	568,800
June			39,200	39,200
Total Cash collections	338,400	618,400	690,000	3,142,800

2A)

Merchandise Purchase Budget
	April	May	June
Closing inventory	110,600	68,600	54,600
COGS	413,000	553,000	343,000
Total needs	441,000	511,000	329,000
Required inventory purchases	358,400	400,400	260,400

2B)

	April	May	June	Quarter
Closing Accounts payable	179,200	200,200	130,200	509,600
April purchases	358,400
May purchases		400,400
June purchases			260,400
Total Cash disbursements	190,100	379,400	330,400	899,900