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 informatiorn 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 Sales Cost of goods sold Gross margin Selling and administrative expenses: $500,000 $1,03e,000 $480,000 $380,000 721,000 336,000 266,000 309,000 144,000 114,000 350,000 150,000 Selling expense 98,000 97,000 44,000 59,000 38,000 59,200 36, 800 36,000 Administrative expense Total selling and administrative expenses Net operating income 141,000 157,200 95, 800 74,000 $ 9,000 151,800 $ 48,200 $ 40,000 "Includes $21,000 of depreciation each month

Explanation / Answer

Schedule of Expected cash Collections April May June Quarter Sales 500000 1030000 480000 2010000 Cash Sales 100000 206000 96000 402000 Credit sales 400000 824000 384000 1608000 Collection of credit sales Feb 31200 31200 March 134400 38400 172800 April 100000 260000 40000 400000 May 206000 535600 741600 june 96000 96000 Total collections 365600 710400 767600 1843600 2 Merchandise purchase BUDGET April May June Quarter july Budgeted cost of goods sold 350000 721000 336000 1105500 266000 Add: desired ending inventory 108150 50400 39900 39900 Total Needs 458150 771400 375900 1605450 Less: beginning inventory 70000 108150 50400 50400 required purchases 388150 663250 325500 1555050 Schedule of cash disbursements- Merchandise purchases April May June Quarter March 102200 102200 April 194075 194075 388150 May 331625 331625 663250 June 162750 162750 Total Disbursements 296275 525700 331625 1153600 CASH BUDGET jan feb march Quarter Beginning cash Blance 50000 40325 52825 50000 Add: Collections 365600 710400 767600 1843600 Total Cash Available 415600 750725 820425 1893600 Less: Cash Disbursements For Inventory 296275 525700 331625 1153600 For Expenses 120000 136200 74800 331000 Land 0 36000 0 36000 Dividends 28000 Total Cash Disbursements 416275 697900 406425 1520600 Excess / Deficiency of cash -675 52825 414000 373000 Financing: Borrowings 41000 0 41000 repayments 0 0 -41000 -41000 Interest 0 0 -820 -820 Total Financing 41000 0 -41820 -820 Ending cash Balance 40325 52825 372180 372180

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