garden Sales, Inc., sells garden supplies. Management is planning its cash needs
ID: 2568287 • 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; 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 $280,000, and March’s sales totaled $295,000.
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 $133,000.
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.
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.
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.
3 - 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:
July April 720,000 $ 890,000 S 600,000 $ 500,000 504,000 623,000 420,000 350,000 May June Sales Cost of goods sold Gross margin Selling and administrative expenses: 216,000 267,000 180,000 150,000 Selling expense Administrative expense 90,000 109,000 71,000 50,000 50,000 68,000 44,000 48,000 140,000 177,000 115,000 98,000 $ 76,000 90,000 65,000 $ 52,000 Total selling and administrative expenses Net operating income ncludes $32,000 of depreciation each month.Explanation / Answer
Description April May June July Sale revenue 720,000 890,000 600,000 500,000 Cash Sale-20% 144,000 178,000 120,000 100,000 Credit Sale-80% 576,000 712,000 480,000 400,000 Cash Receipt from Sale Cash sale 144,000 178,000 120,000 100,000 Credit sale collection- same month-10% 57,600 71,200 48,000 40,000 Credit sale collection- next month-70% 165,200 403,200 498,400 336,000 Credit sale collection- following month-20% 44,800 47,200 115,200 142,400 Monthly sale collection 411,600 699,600 781,600 618,400 Finished Stock Cost of goods sold 504,000 623,000 420,000 350,000 Add Closing Stock -20% of following month sale 124,600 84,000 70,000 - Less Opening Stock- (100,800) (124,600) (84,000) (70,000) Purchase during the month 527,800 582,400 406,000 280,000 Accounts payable payment- Same month-50% 263,900 291,200 203,000 140,000 Accounts payable payment- Next month-50% 133,000 263,900 291,200 203,000 Total Payment 396,900 555,100 494,200 343,000 Opening cash 61,000 40,700 40,200 Budgeted Receipts 411,600 699,600 781,600 Budgeted Cash payments Accounts payable (396,900) (555,100) (494,200) Fixed overhead Selling (90,000) (109,000) (71,000) Administrative excluding depreciation (18,000) (36,000) (12,000) Land (47,000) Dividend payment (39,000) Interest payment-112000*1%*3 (3,360) Interest payment-47000*1%*2 (940) Loan payment (159,000) Preliminary cash balance (71,300) (6,800) 81,300 Minimum required cash balance 40,000 40,000 40,000 Borrow/(paid back) 112,000 47,000 - Closing cash balance 40,700 40,200 81,300
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