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 April-July are April 413,000 518,000 176,400 273,000 177,000 222,000 75,600 117,000 June July Sales $590,000 $ 740,000 $ 252,000 $ 390,000 Cost of goods sold Gross margin Selling and administrative expenses Sellin Administrative expense ing expense 80,000 2,500 29,500 39,000 4,500 81,200 27,400 37,000 124,500 193,700 56,900 76,000 $ 52,500 $ 28,300 $ 18,700 $ 41,000 Total selling and administrative expenses Net operating income Includes $16,500 of depreciation each month 0% for cash and 80% on account b. Sales are 2 C. Sales on account are collected over a three-month period with 10% collected in the month of sale: 80% collected in the first month following the month of sale, and the remaining 10% collected in the second month following the month of sale. February's sales totaled $145,000, and March's sales totaled $255,000 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 payable at March 31 for inventory purchases during March total $112,700 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 $82,600 f. Dividends of $29,000 will be declared and paid in April g.Land costing $37,000 will be purchased for cash in May h. The cash balance at March 31 is $51,000; 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

1) Schedule of Expected cash collection April May June Quarter Cash sales 118000 148000 50400 316400 Sales on account February (145000*10%) 14500 14500 March (255000*80%;10%) 204000 25500 229500 April (472000*10%;80%;10%) 47200 377600 47200 472000 May (592000*10%;80%) 59200 473600 532800 June (201600*10%) 20160 20160 Total cash collections 383700 610300 591360 1585360 2) Merchandise purchase budget April May June Budgeted cost of goods sold 413,000 518,000 176,400 Add: ending inventory 103600 35280 54600 Total needs 516,600 553,280 231,000 less:Beginning inventory 82,600 103,600 35,280 Required inventory purchases 434,000 449,680 195,720 b) Schedule of Expected Cash Disbursements for Merchandise purchase April May June Quarter Beginning accounts payable 112,700 112,700 April purchases 217000 217000 434000 May purchases 224840 224840 449680 June purchases 97860 97860 total cash disbursements 329,700 441840 322700 1,094,240 3) Cash budget April May June Quarter Beginning cash balance 51,000 40,000 40,260 51,000 Add collections from customers 383700 610300 591360 1585360 total cash available 434,700 650300 631620 1636360 less cash Disbursements purchase of inventory 329,700 441840 322700 1,094,240 selling expenses 80,000 112,500 29,500 222,000 administrative expenses 28000 64700 10900 103600 land purchases 0 37,000 0 37000 dividends paid 29,000 0 0 29,000 total cash disbursements 466,700 656040 363100 1,485,840 Excess(Deficiency)of cash available -32,000 -5740 268520 150,520 Financing Borrowing 72,000 46,000 0 118,000 Repayment 0 0 -118000 -118000 interest 0 0 -3,080 -3080 total financing 72,000 46,000 -121080 -3,080 ending cash balance 40,000 40,260 147440 147,440 interest = 72000*1%*3 2160 46000*1%*2 920 3080

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.