Garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2522174 • 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; 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 $105,000, and March’s sales totaled $205,000.
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 $93,100.
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 $71,400.
The cash balance at March 31 is $43,000; 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 1. Sales Budget April May June Total Sales in $ 510,000.00 660,000.00 205,000.00 1,375,000.00 Cash Sales - 20% 102,000.00 132,000.00 41,000.00 275,000.00 Credit Sales - 80% 408,000.00 528,000.00 164,000.00 1,100,000.00 Schedule of Expected Cash Collections from Sales April May June Total Cash Sales 102,000.00 132,000.00 41,000.00 275,000.00 Collection from Accounts Receivables Feb Sales 10,500.00 10,500.00 March Sales 164,000.00 20,500.00 - 184,500.00 April Sales 40,800.00 326,400.00 40,800.00 408,000.00 May Sales 52,800.00 422,400.00 475,200.00 June Sales Sales 16,400.00 16,400.00 Total cash Collections 317,300.00 531,700.00 520,600.00 1,369,600.00 Answer 2-a. Merchandise Purchase Budget April May June Total Cost of Goods Sold 357,000.00 462,000.00 143,500.00 962,500.00 Add: Closing Inventory 92,400.00 28,700.00 43,400.00 43,400.00 Total Needs 449,400.00 490,700.00 186,900.00 1,005,900.00 Less: Begnning Inventory (71,400.00) (92,400.00) (28,700.00) (71,400.00) Required Purchases 378,000.00 398,300.00 158,200.00 934,500.00 Answer 2-b. Schedule of Cash payments to Suppliers April May June Total Cash Payment Accounts Payable - March 93,100.00 93,100.00 April Purchases 189,000.00 189,000.00 378,000.00 May Purchases 199,150.00 199,150.00 398,300.00 June Purchases 79,100.00 79,100.00 Total Cash Payment to Suppliers 282,100.00 388,150.00 278,250.00 948,500.00 Answer 3. Cash budget April May June Total Opening cash Balance 43,000.00 40,200.00 40,350.00 43,000.00 Add: receipts Collection from Customers 317,300.00 531,700.00 520,600.00 1,369,600.00 Total Cash available 360,300.00 571,900.00 560,950.00 1,412,600.00 Less: Disbursements Cash Disbursement - Accounts Payable 282,100.00 388,150.00 278,250.00 948,500.00 Selling & Admn. Exp.: Selling Expenses 71,000.00 116,500.00 25,500.00 213,000.00 Administrative Expenses 28,000.00 51,900.00 10,100.00 90,000.00 Purchase of Land - 29,000.00 - 29,000.00 Dividend Paid 21,000.00 - - 21,000.00 Total Disbursement 402,100.00 585,550.00 313,850.00 1,301,500.00 Cash Balance Closing (41,800.00) (13,650.00) 247,100.00 111,100.00 Add: Finance from Bank 82,000.00 54,000.00 136,000.00 Less: Payment to Bank - (136,000.00) (136,000.00) Less: Payment of interet - Bank loan - (3,540.00) (3,540.00) Net Cash Balance Closing 40,200.00 40,350.00 107,560.00 107,560.00
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