Garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2548365 • 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:
a.
Budgeted monthly absorption costing income statements for April–July are:
April
May
June
July
Sales
$
540,000
$
690,000
$
220,000
$
340,000
Cost of goods sold
378,000
483,000
154,000
238,000
Gross margin
162,000
207,000
66,000
102,000
Selling and administrative expenses:
Selling expense
74,000
117,500
27,000
34,000
Administrative expense*
42,000
67,200
24,400
32,000
Total selling and administrative expenses
116,000
184,700
51,400
66,000
Net operating income
$
46,000
$
22,300
$
14,600
$
36,000
Includes $14,000 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; 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 $120,000, and March’s sales totaled $220,000.
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 $99,400.
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 $75,600.
f.
Dividends of $24,000 will be declared and paid in April.
g.
Land costing $32,000 will be purchased for cash in May.
h.
The cash balance at March 31 is $46,000; 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.
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
SALES BUDGET: February March April May June Quarter July Sales 120000 220000 540000 690000 220000 1450000 340000 Cash sales (20%) 24000 44000 108000 138000 44000 290000 Credit sales (80%) 96000 176000 432000 552000 176000 1160000 1) SCHEDULE OF EXPECTED CASH COLLECTIONS:: Cash sales 108000 138000 44000 290000 Collection from customers: From currrent month's sale 43200 55200 17600 116000 From previous month's sale 140800 345600 441600 928000 From sale two months before 9600 17600 43200 70400 193600 418400 502400 1114400 Total cash receipts from sales/receivables 301600 556400 546400 1404400 2) a) MERCHANDISE PURCHASE BUDGET: Cost of goods sold 378000 483000 154000 1015000 238000 Desired ending inventory 96600 30800 47600 47600 Cost of goods to be available for sale 474600 513800 201600 1062600 Beginning inventory 75600 96600 30800 75600 Purchases required 399000 417200 170800 987000 SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR MERCHANDISE PURCHASES: For purchases of same month 199500 208600 85400 493500 For purchases of previous month 99400 199500 208600 507500 Total payments for purchases 298900 408100 294000 1001000 CASH BUDGET: Beginning balance 46000 40,700 40,300 46000 Receipts from cash sales & receivables 3,01,600 5,56,400 5,46,400 14,04,400 Total cash available 3,47,600 5,97,100 5,86,700 14,50,400 CASH DISBURSEMENTS: Payments for purchases 2,98,900 4,08,100 2,94,000 10,01,000 Payments for S&A expenses 1,02,000 1,70,700 37,400 3,10,100 Purchase of land 32000 0 32,000 Dividends 24000 0 0 24,000 Total disbursements 4,24,900 6,10,800 3,31,400 13,67,100 Surplus/(Deficit) -77,300 -13,700 2,55,300 83,300 Financing: Borrowings 118000 54000 0 172000 Repayments 0 0 1,72,000 172000 Interest (1180*3+540*2) 4,620 Total financing 118000 54000 -1,76,620 -4620 Ending cash balance 40,700 40,300 78,680 78,680
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.