Garden Sales, Inc., sells garden supplies. Management is planning its cash needs

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 Apri-July are April 770,000 $ 930,000 $ 630,000 540,000 539,000 651,000 441,000 378,000 une Sales Cost of goods sold Gross margin Selling and administrative expenses 231,000 279,000 189,000 162,000 Selling expense Administrative expense* 93,000 2,000 74, 74,000 54,000 51,500 70,400 45,800 51,000 144,500 182,400 119,800 105,000 $ 86,500 $ 96,600 $ 69,200 $ 57,000 Total selling and administrative expenses Net operating income "Includes $35,000 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 $295,000, and March's sales totaled $310,000 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 payab March 31 for inventory purchases during March total $140,700 le at 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 $107,800 f. Dividends of $42,000 will be declared and paid in April g.Land costing $50,000 will be purchased for cash in May h. The cash balance at March 31 is $64,000; the company must maintain a cash balance of atleast $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 end of the quarter

Explanation / Answer

SCHEDULE OF EXPECTED CASH COLLECTIONS:                                                                                     April May June Total July Sales 770000 930000 630000 2330000 540000 Cash Sale 154000 186000 126000 466000 Credit Sales 616000 744000 504000 1864000 Feb 47200 47200 Mar 173600 49600 223200 April 61600 431200 123200 616000 May 74400 520800 595200 June 0 50400 50400 Total cash collections                                                                                     436400 741200 820400 1998000 Cash Disbursement April May June Total July Finished Goods Cost of Good sold 70% of sales 539000 651000 441000 1631000 378000 Closing Inventory 20% of next month COGS 130200 88200 75600 75600 Total Finised Googd 669200 739200 516600 1706600 Less: Beginning Inventory 107800 130200 88200 107800 Required Inventory Purchase    P 561400 609000 428400 1598800 Required Inventory Purchase 561400 609000 428400 1598800 Cash Disbursement April May June Total Begnning Accounts Payable 140700 0 0 140700 April 50% of P 280700 280700 561400 May 304500 304500 609000 Jume 0 0 214200 214200 Total B 421400 585200 518700 1525300 CASH BUDGET                                                                                   FOR THE 3 MONTHS ENDING DECEMBER 31                                                                                          April May June Totalk Beginning Cash balance                                                                                      64000 40500 40100 64000 Add collections from customers                                                                                436400 741200 820400 1998000 Total cash available                                                                                         500400 781700 860500 2062000 Less Cashdisbursements                                                                                        Purchase of Inventory 421400 585200 518700 1525300 Selling Expenses 93000 112000 74000 279000 Administrative Expenses 16500 35400 10800 62700 Land Purchases 0 50000 0 50000 Dividend Paid 42000 42000 Total disbursements                                                                                      572900 782600 603500 1959000                                                                                                 Excess (deficiency) of receipts                                                                                    -72500 -900 257000 257000    over disbursements                                                                                    Less: Minimum Cash Balance 40000 40000 40000 40000 Total cash balance( needed)/Excess -112500 -40900 217000 217000 Financing:                                                                                               Borrowings                                                                                      113000 41000    Repayments                                                                                   -154000 -154000 As paid at end    Interest                                                                                            4210 4210 (113000*3%)+(41000*2%) Total financing                                                                                  113000 41000 -149790 -149790                                                                                                 Cash balance, ending     (withminimum balance)                                                                        40500 40100 107210 107210

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