GrowMaster Products, a rapidly growing distributor of home gardening equipment,
ID: 2477898 • Letter: G
Question
GrowMaster 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
January
$907,500
July
$1,507,500
February
$1,004,000
August
$1,507,500
March
$907,500
September
$1,609,100
April
$1,158,500
October
$1,609,100
May
$1,251,000
November
$1,507,500
June
$1,400,500
December
$1,703,300
All sales are made on credit.
GrowMaster’s excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.
Cost of goods sold, GrowMaster’s largest expense is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.
All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.
Hourly wages and fringe benefits, estimated at 30 percent of the current month’s sales, are paid in the month incurred.
General and administrative expenses are projected to be $1,566,800 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.
Salaries and fringe benefits $322,400
Advertising 375, 800
Property taxes 136, 800
Insurance 197, 600
Utilities 184, 300
Depreciation 349, 900
Total $1,566,800
Operating income for the first quarter of the coming year is projected to be $324,300. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.
GrowMaster 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 percent 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.
Prepare the purchases budget for the second quarter.
Prepare the cash payments budget for the second quarter.
Prepare the cash budget for the second quarter.
Month
Sales
Month
Sales
January
$907,500
July
$1,507,500
February
$1,004,000
August
$1,507,500
March
$907,500
September
$1,609,100
April
$1,158,500
October
$1,609,100
May
$1,251,000
November
$1,507,500
June
$1,400,500
December
$1,703,300
Explanation / Answer
The purchases budget for the second quarter Sl no Particulars Operation April May June July i Sales $1,158,500.00 $1,251,000.00 $ 1,400,500.00 $1,507,500.00 ii Cost of Goods Sold i*40% $ 463,400.00 $ 500,400.00 $ 560,200.00 $ 603,000.00 iii Purchase 30% of Current Month + 70% of Next month's cost of goods sold $ 489,300.00 $ 542,260.00 $ 590,160.00 The Cash Payments Budget & Cash Budgetfor the second quarter Sl no Particulars Operation February March April May June July i Sales $1,004,000 $907,500 $1,158,500 $1,251,000 $1,400,500 $1,507,500 ii Cost of Goods Sold i*40% $363,000 $ 463,400 $ 500,400 $ 560,200 $ 603,000 iii Purchase 30% of Current Month + 70% of Next month $433,280 $ 489,300 $ 542,260 $ 590,160 iv Payments against Purchase 75% of current month & 25% of previous month $ 475,295 $ 529,020 $ 578,185 v Hourly wages and fringe benefits 30% of sales paid in Current month $ 347,550 $ 375,300 $ 420,150 vi General and administrative expenses except Taxes =(1566800-136800-349900)/12 $ 90,008 $ 90,008 $ 90,008 vii Property taxes =136800/4 $ - $ - $ 34,200 viii Payment of Tax =324300*40% $ 129,720 $ - $ - ix Total Payment except repayment of borrrowing $1,042,573 $ 994,328 $1,122,543 x Opening Cash balance of cash $ 57,700 xi Receipt from Sales 60%of current month's sale + 40% of sale made two month later $1,096,700 $1,113,600 $1,303,700 xii Closing Balance of cash xi+x-ix $ 111,827 $ 119,272 $ 181,157
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.