GrowMaster Products, a rapidly growing distributor of home gardening equipment,
ID: 2479090 • Letter: G
Question
GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm’s marketing director, has completed the following sales forecast. Month Sales Month Sales January $904,900 July $1,501,400 February $1,002,000 August $1,501,400 March $904,900 September $1,606,000 April $1,154,600 October $1,606,000 May $1,260,000 November $1,501,400 June $1,406,000 December $1,704,000 Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information. All sales are made on credit. GrowMaster’s excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale. Cost of goods sold, GrowMaster’s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased. All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase. Hourly wages and fringe benefits, estimated at 30 percent of the current month’s sales, are paid in the month incurred. General and administrative expenses are projected to be $1,575,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter. Salaries and fringe benefits $ 323,700 Advertising 378,800 Property taxes 142,400 Insurance 195,600 Utilities 184,800 Depreciation 349,700 Total $ 1,575,000 Operating income for the first quarter of the coming year is projected to be $329,100. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter. GrowMaster maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $51,300. Prepare the cash payments budget for the second quarter.
Explanation / Answer
Cash payment budget is prepared as under:
Working Notes:
Grow master Products Schedule of expected Cash payments For the quarter ended June 30,2015 Month Particulars April May June Total Beginning Accounts Payable (a) $1,07,969 $1,07,969 April Purchases (b) $3,68,514 $1,22,838 $4,91,352 May Purchases (c ) $4,08,660 $1,36,220 $5,44,880 June Purchases (d) $4,41,834 $4,41,834 Total payments (a+b+c+d) $4,76,483 $5,31,498 $5,78,054 $15,86,035Related Questions
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