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:

1. Budgeted monthly absorption costing income statements for April–July are:

	April		May		June		July
Sales	$	600,000	$	900,000	$	500,000	$	400,000
Cost of goods sold		420,000		630,000		350,000		280,000
Gross margin		180,000		270,000		150,000		120,000
Selling and administrative expenses:
Selling expense		79,000		120,000		62,000		51,000
Administrative expense*		45,000		52,000		41,000		38,000
Total selling and administrative expenses		124,000		172,000		103,000		89,000
Net operating income	$	56,000	$	98,000	$	47,000	$	31,000

*Includes $20,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. 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 $200,000, and March’s sales totaled $300,000.

4. 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 $126,000.

5. 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 $84,000.

6. Dividends of $49,000 will be declared and paid in April.

7. Land costing $16,000 will be purchased for cash in May.

8. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. 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 end of the quarter.

Required:

1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

2. Prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, and June.

b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.

3. Prepare a cash budget for April, May, and June as well as in total for the quarter.

Answer 1

solution is as follws

2 Dis bursement for thatchandise Accounts purgable muy Thinc opening July 126000 126000 220500 22500 may June 30920 239 250 399250 140no 678500 July I 45410 230.000 1 31252 Total 559762.539850 346500 649750 479259 27 1250 the opening inventos CS Scanned with CamScanner

Cash Budget July total Legnanny cash. 94504 80. (24€80. 536 CED 59 booo 24 50 480. April Tume 52000- Cash collected from Castoner 359400 598080 268010 Total Chh Available 410400 410400 1598080 868000 Less Cash disburollment 346500 559752 purchall for inventory 479250 Selling expenses 79000 120000 62016 Administrative expenses 25 DOD 32000 laund purchared piridund paid Total blh bishurhlament 499500 7 2775D 562257 Excurs Cash arailable ( 89100) (129670) 305750. 1656752 271250 51000 18ODO 21000 312000 96010 49000 1600D 49 ODD. 340250 2129750 195750 320730 Note: Repriciation is Non Ish Expenss hence it is not deducted CS Scanned with CamScanner

thank you..........