Problem 5-35 GrowMaster Products, a rapidly growing distributor of home gardenin
ID: 2511900 • Letter: P
Question
Problem 5-35 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 $900,000 July February $1,000,000 August March April May June $1,500,000 $1,500,000 $900,000 September $1,600,000 $1,600,000 $1,250,000 November $1,500,000 $1,400,000 December$1,700,000 $1,150,000 ctober Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information. » 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 $1,550,000 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 Advertising Property taxes Insurance Utilities Depreciation Total $ 324,000 372,000 136,000 192,000 180,000 346,000 1,550,000Explanation / Answer
Answer:
A)Prepare the cash receipts budget for the second quarter
Total Cash
Accounts
recivable
April
May
June
Receipts
February sales
$1,000,000 x 40%
400000
400000
March sales
$900,000 ´x60%
540000
540000
$900,000 x 40%
360000
360000
April sales
$1,150,000 x 60%
690000
690000
$1,150,000 x40%
460000
460000
May sales
$1,250,000x 60%
750000
750000
$1,250,000 x40%
500000
Totals
940000
1050000
1210000
3200000
500000
________________________________________
b)
Prepare the purchases budget for the second quarter.
Total
Purchase
April
May
June
April COGS
$1,150,000 ´ 40% ´ 30%
138000
138000
May COGS
$1,250,000 ´ 40% ´ 70%
350000
350000
$1,250,000 ´ 40% ´ 30%
150000
150000
June COGS
$1,400,000 ´ 40% ´ 70%
392000
392000
$1,400,000 ´ 40% ´ 30%
168000
168000
July COGS
$1,500,000 ´ 40% ´ 70%
420000
420000
Totals
488000
542000
588000
1618000
_______________________________________
c)
Prepare the cash payments budget for the second quarter
April
May
June
Total Cash
Payments
Accounts Payable
March purchases
$430,000 ´ 25%
$107,500
$107,500
April purchases
$488,000 ´ 75%
366,000
366,000
$488,000 ´ 25%
$122,000
122,000
May purchases
$542,000 ´ 75%
406,500
406,500
$542,000 ´ 25%
$135,500
135,500
June purchases
$588,000 ´ 75%
441,000
441,000
$588,000 ´ 25%
$147,000
Totals
$473,500
$528,500
$576,500
$1,578,500
$147,000
________________________________________
d)
Prepare the cash budget for the second quarter.
April
May
June
Quarter
Beginning cash balance
$50,000
$50,500
$50,080
$50,000
Collections from sales (from Part a)
940,000
1,050,000
1,210,000
3,200,000
Total cash available to spend
990,000
1,100,500
1,260,080
3,250,000
Less disbursements
Payments for inventory (from Part c)
473,500
528,500
576,500
1,578,500
Wages (30% of sales)
345,000
375,000
420,000
1,140,000
Salaries
27,000
27,000
27,000
81,000
Advertising
31,000
31,000
31,000
93,000
Property taxes
34,000
34,000
Insurance
16,000
16,000
16,000
48,000
Utilities
15,000
15,000
15,000
45,000
Income taxes
128,000
128,000
Total cash disbursements
1,035,500
992,500
1,119,500
3,147,500
Cash excess (deficiency)
-45,500
108,000
140,580
102,500
Minimum cash balance
50,000
50,000
50,000
50,000
Cash excess (needed)
-95,500
58,000
90,580
52,500
Financing:
Borrowings
96,000
96,000
Repayments
-56,000
-40,000
-96,000
Interest
-1,920
-400
-2,320
Total financing
96,000
-57,920
-40,400
-2,320
Ending cash balance
$50,500
$50,080
$100,180
$100,180
Total Cash
Accounts
recivable
April
May
June
Receipts
February sales
$1,000,000 x 40%
400000
400000
March sales
$900,000 ´x60%
540000
540000
$900,000 x 40%
360000
360000
April sales
$1,150,000 x 60%
690000
690000
$1,150,000 x40%
460000
460000
May sales
$1,250,000x 60%
750000
750000
$1,250,000 x40%
500000
Totals
940000
1050000
1210000
3200000
500000
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