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 $ 670,000 $ 840,000 $ 550,000 $ 450,000 469,000 588,000 385,000 315,000 201,000 252,000 165,000 135,000 Sales Cost of goods sold Gross margin Selling and administrative expenses : Selling expense Administrative expense* Total selling and administrative expenses Net operating income 85,000 47,500 132,500 $ 68,500 104,000 66,000 64,000 40,400 168,000 106,400 $ 84,000 $ 58,600 45,000 43,000 88,000 $ 47,000 *Includes $27,000 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 $255,000, and March's sales totaled $270,000. 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 $122,500. 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 $93,800.

Answer 1

Solution 1:

Schedule of expected cash collection - Garden Sales
Particulars	April	May	June	Quarter
Cash sales(20%)	$134,000.00	$168,000.00	$110,000.00	$412,000.00
Sales on Account:(80%)
February	$40,000.00			$40,000.00
March	$151,200.00	$43,200.00		$194,400.00
April	$53,600.00	$375,200.00	$107,200.00	$536,000.00
May		$67,200.00	$470,400.00	$537,600.00
June			$44,000.00	$44,000.00
Total Cash Collection	$378,800.00	$653,600.00	$731,600.00	$1,764,000.00

Solution 2a:

Merchandise Purchase Budget
Particulars	April	May	June
Budgeted Cost of goods sold	$469,000.00	$588,000.00	$385,000.00
Add: Desired ending inventory (20% of COGS of next month)	$117,600.00	$77,000.00	$63,000.00
Total needs	$586,600.00	$665,000.00	$448,000.00
Less: Opening Inventory	$93,800.00	$117,600.00	$77,000.00
Required Inventory purchases	$492,800.00	$547,400.00	$371,000.00

Solution 2b:

Schedule of expected cash disbursement for merchandise purchases
Particulars	July	August	September	Total
Beginning accounts payable	$122,500.00			$122,500.00
April Purchases	$246,400.00	$246,400.00		$492,800.00
May Purchases		$273,700.00	$273,700.00	$547,400.00
June Purchases			$185,500.00	$185,500.00
Total cash disbursement	$368,900.00	$520,100.00	$459,200.00	$1,348,200.00

Solution 3:

Cash Budget - Garden Sales Inc. For the quarter ended June 30
Particulars	April	May	June	Quarter
Opening Cash balance	$56,000.00	$40,400.00	$40,900.00	$56,000.00
Add: Collection from customers	$378,800.00	$653,600.00	$731,600.00	$1,764,000.00
Total Cash Available	$434,800.00	$694,000.00	$772,500.00	$1,820,000.00
Less - Cash Disbursement:
Purchases For Inventory	$368,900.00	$520,100.00	$459,200.00	$1,348,200.00
Selling expenses	$85,000.00	$104,000.00	$66,000.00	$255,000.00
Administrative expenses	$20,500.00	$37,000.00	$13,400.00	$70,900.00
Land Purcahses	$0.00	$42,000.00	$0.00	$42,000.00
Dividend paid	$34,000.00	$0.00	$0.00	$34,000.00
Total Cash disbursement	$508,400.00	$703,100.00	$538,600.00	$1,750,100.00
Excess (deficiency) of cash available over disbursements	-$73,600.00	-$9,100.00	$233,900.00	$69,900.00
Financing:
Borrowings	$114,000.00	$50,000.00	$0.00	$164,000.00
Repayments	$0.00	$0.00	-$164,000.00	-$164,000.00
Interest	$0.00	$0.00	-$4,420.00	-$4,420.00
Total Financing	$114,000.00	$50,000.00	-$168,420.00	-$4,420.00
Ending cash balance	$40,400.00	$40,900.00	$65,480.00	$65,480.00