Garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2567603 • Letter: G
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:
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. February’s sales totaled $280,000, and March’s sales totaled $295,000.
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 $133,000.
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 $100,800.
The cash balance at March 31 is $61,000; the company must maintain a cash balance of atleast $40,000 at the end of each month.
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.
Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.
Prepare the following for merchandise inventory:
A merchandise purchases budget for April, May, and June.
A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.
Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
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:
Explanation / Answer
Answer for question no.1:
Calculation:
Answer for question no.2a:
Calculations for the above table:
Answer for question no.2b:
Payments for purchases
Calculation:
Answer for question no.3:
Calculations:
Particulars April May June Sales $7,20,000.00 $8,90,000.00 $6,00,000.00 Cash sales(1)=20%*total sales $1,44,000.00 $1,78,000.00 $1,20,000.00 Credit sales (2)=80% of total sales $5,76,000.00 $7,12,000.00 $4,80,000.00 10% collected in the first month(3) $57,600.00 $71,200.00 $48,000.00 70% collected in the following month(4) $1,65,200.00 $4,03,200.00 $4,98,400.00 20% collected in the second month(5) $44,800.00 $47,200.00 $1,15,200.00 Total cash collected(6)=(1)+(3)+(4)+(5) $4,11,600.00 $6,99,600.00 $7,81,600.00Related Questions
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