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

Question

den 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 April-July are: AprilMay June July s 460,000 $990,000 440,000 340,000 322,000 693,000 308,000 238,000 138,000 297,000 132,000 102,000 Sales Cost of gooda sold Gross margin nces Belling and administrative expensesE 89,000 94,00055,000 34,000 42,000 56,000 34,40032,000 66,000 Selling expense Administrative expense Total selling and administrative expenses Net operating income 131,000 150,000 89.400 $7,000 $147,000 42,600 36,000 Includes $16,000 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 F totaled $160,000, and March's sales totaled $220,000 ebruary's sales 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 payable at total $93,800. March 31 for inventory purchases during March e. Each month's ending ventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $64,400. f. Dividends of $24,000 will be declared and paid in April. g. Land costing $32,000 will be purchased for cash in May

Explanation / Answer

April May June Credit sales from February 20.00 March 70.00 20.00 April 25.00 65.00 10.00 May 25.00 65.00 June 25.00 July August Amount collected in April May June Qaurter Credit sales from Amount February 128000 25600 25600 march 176000 123200 35200 158400 April 368000 92000 239200 36800 368000 May 792000 0 198000 514800 712800 June 352000 0 0 88000 88000 Total 240800 472400 639600 1352800 Merchandise Purchase budget April May June Next Month's cost of goods sold 693000 308000 238000 1239000 Ratio of Inventory to future cost of goods sold 15% 15% 15% Budgted "base" Ending Inventory in dollars 103950 46200 35700 35700 Cost of goods sold for the month 322000 693000 308000 1323000 Inventory needed 425950 739200 343700 1358700 Less : beginning inventory 64400 103950 46200 64400 Budgeted purchases in dollars 361550 635250 297500 1294300 Cash payment on product purchases for June & July Percent paid in April May June From Purchases in April 50% 50% May 50% 50% June 50% Amount paid in April May June Quarter From Purchases in Amount March 93800 93800 April 361550 180775 180775 0 361550 May 635250 0 317625 317625 635250 June 297500 0 0 148750 148750 Total 274575 498400 466375 1239350 Cash Budget April May June Quarter Beginning cash balance 46000 40225 46225 46000 Collection from sales Cash sales 92000 198000 88000 378000 Collection from customers 240800 472400 639600 1352800 Total cash available 378800 710625 773825 1776800 Cash payment for purchases 274575 498400 466375 1239350 Selling & administrative expeses 115000 134000 73400 322400 Dividends 24000 24000 Payment for land purchase 32000 32000 Total Cash payment 413575 664400 539775 1617750 Preliminary cash Balance -34775 46225 234050 159050 Interest Paid -2250 -2250 Borrowed/(repaid) 75000 0 -75000 Ending Cash balance 40225 46225 156800 156800

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