8.00 points Problem 7-22A Cash Budget with Supporting Schedules [LO7-2, LO7-4, L

Question

8.00 points Problem 7-22A Cash Budget with Supporting Schedules [LO7-2, LO7-4, LO7-8] 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 May July April 504,000 588,000 206,500 350,000 216,000 252,000 88,500 150,000 Sales $ 720,000 $ 840,000 $ 295,000 $ 500,000 Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense 90,000 119,000 34.500 50,000 50,000 81,800 33,400 48,000 140,000 200,800 67,900 98,000 $ 76,000 $ 51,200 20,600 $ 52,000 Total selling and administrative expenses Net operating income ?ncludes $21,500 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. February's sales totaled $195,000, and March's sales totaled 295,000 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 $133,000 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 $100,800 f. Dividends of $39,000 will be declared and paid in April. g. Land costing $47,000 will be purchased for cash in May. h. 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. 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. Required 1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total Garden Sales, Inc. Schedule of Expected Cash Collections April S 144,000S 168,000S May June Quarter Cash sales 59,000 371,000 Sales on account 31,200 165,200 57,600 February March April May June 31,200 212,400 576,000 537,600 23,600 398,000S 685,600S 668,200S 1,751,800 47,200 403,200 67,200 115,200 470,400 23,600 Total cash collections

Explanation / Answer

Production Budget April May June July Budgeted sales in $s $720,000 $840,000 $295,000 $500,000 Average price per unit $60 $60 $60 $60 Budgeted unit sales (sales/unit price) 12000 14000 4917 8333 Add: Desired units of ending Finished Goods Inventory 2800 983 1667 0 Total Needs 14800 14983 6583 8333 Less: Units of beginning Finished Goods Inventory 2400 2800 983 1667 Required production in Units 12400 12183 5600 6667 Beginning inventory for April = Ending Inventory for March Ending inventory for March = 12000 x 20% = 2400 units 10 a In July expected units to sell = $500000/$60 = 8333 units b Beginning inventory for April = Ending Inventory for March Ending inventory for March = 12000 x 20% = 2400 units 2400 units is the beginning inventory for April c June ending inventory = July's expected sales x 20%                                                = 8333 x 20%                                                = 1667 units d Production Budget for the quarter Production Budget April May June Quarter Budgeted sales in $s $720,000 $840,000 $295,000 $1,855,000 Average price per unit $60 $60 $60 $60 Budgeted unit sales (sales/unit price) 12000 14000 4917 30917 Add: Desired units of ending Finished Goods Inventory 2800 983 1667 1667 Total Needs 14800 14983 6583 32584 Less: Units of beginning Finished Goods Inventory 2400 2800 983 2400 Required production in Units 12400 12183 5600 30184

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