Garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2433240 • 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: Budgeted monthly absorption costing income statements for April–July are: April May June July Sales $ 730,000 $ 1,190,000 $ 650,000 $ 560,000 Cost of goods sold 511,000 833,000 455,000 392,000 Gross margin 219,000 357,000 195,000 168,000 Selling and administrative expenses: Selling expense 129,000 114,000 76,000 56,000 Administrative expense* 55,500 74,200 47,000 53,000 Total selling and administrative expenses 184,500 188,200 123,000 109,000 Net operating income $ 34,500 $ 168,800 $ 72,000 $ 59,000 *Includes $37,000 of depreciation each month. Sales are 20% for cash and 80% on account. 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 $305,000, and March’s sales totaled $320,000. 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 $140,700. 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 $102,200. Dividends of $44,000 will be declared and paid in April. Land costing $56,000 will be purchased for cash in May. The cash balance at March 31 is $66,000; the company must maintain a cash balance of at least $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 The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows: Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $102,200 and accounts payable for inventory purchases at March 31 remains $140,700. Required: 1. Using the president’s new assumptions in (1) above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total. 2. Using the president’s new assumptions in (2) above, prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June. b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total. 3. Using the president’s new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total.
Explanation / Answer
Answer:1 Schedule of Expected cash Collections Particulars April May June Quarter Sales 7,30,000 11,90,000 6,50,000 25,70,000 Sales on account: @80% 5,84,000 9,52,000 5,20,000 20,56,000 Cash Sales @20% 1,46,000 2,38,000 1,30,000 5,14,000 February (305000*20%) 61,000 - - 61,000 March (320000*70% & 20%) 2,24,000 64,000 - 2,88,000 April 58,400 4,08,800 1,16,800 5,84,000 May - 95,200 6,66,400 7,61,600 June - - 52,000 52,000 Total cash collections 4,89,400 8,06,000 9,65,200 22,60,600 Answer:2 a. Merchandise Purchases Budget Particulars April May June Budgeted Cost of goods sold 5,11,000 8,33,000 4,55,000 Add: Ending inventory @20% of Following Month 1,66,600 91,000 78,400 Total needs 6,77,600 9,24,000 5,33,400 Less: beginning inventory 1,02,200 1,66,600 91,000 Required inventory purchases 5,75,400 7,57,400 4,42,400 b. Schedule of Expected cash Disbursements Particulars April May June Quarter Beginning accounts payable 1,40,700 - - 1,40,700 April purchases 2,87,700 2,87,700 - - may purchases - 3,78,700 3,78,700 7,57,400 June purchases - - 2,21,200 2,21,200 Total cash disbursements 4,28,400 6,66,400 5,99,900 11,19,300 Answer:3 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 Particulars April May June Quarter Beginning cash balance 66,000 40,500 40,900 66,000 Add:Collections from customers 4,89,400 8,06,000 9,65,200 22,60,600 Total cash available 5,55,400 8,46,500 10,06,100 23,26,600 Less: cash disbursements: Purchases for inventory 4,28,400 6,66,400 5,99,900 16,94,700 Selling expenses 1,29,000 1,14,000 59,000 3,02,000 Administrative expenses 18,500 37,200 10,000 65,700 Land purchases - 56,000 - 56,000 Dividend paid 44,000 - - 44,000 Total cash disbursements 6,19,900 8,73,600 6,68,900 21,62,400 Excess (Deficiency) of cash available over disbursements -64,500 -27,100 3,37,200 1,64,200 Financing: - Borrowings 1,05,000 68,000 1,73,000 Repayment 1,73,000 -1,73,000 Interest @1% per Month 2,780 -2,780 Total financing 1,05,000 68,000 1,75,780 -2,780 Ending cash available 40,500 40,900 1,61,420 1,61,420
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.