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:

1. Budgeted monthly absorption costing income statements for April–July are:

	April		May		June		July
Sales	$	590,000	$	790,000	$	490,000	$	390,000
Cost of goods sold		413,000		553,000		343,000		273,000
Gross margin		177,000		237,000		147,000		117,000
Selling and administrative expenses:
Selling expense		80,000		99,000		60,000		39,000
Administrative expense*		44,500		60,000		37,400		37,000
Total selling and administrative expenses		124,500		159,000		97,400		76,000
Net operating income	$	52,500	$	78,000	$	49,600	$	41,000

*Includes $22,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. 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 $205,000, and March’s sales totaled $245,000.

4. 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 $109,900.

5. 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 $82,600.

6. Dividends of $29,000 will be declared and paid in April.

7. Land costing $37,000 will be purchased for cash in May.

8. The cash balance at March 31 is $51,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. 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.

Required:

1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

2. 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. Prepare a cash budget for April, May, and June as well as in total for the quarter.

Answer 1

Req 1	Schedule of expected cash collection - Garden Sales
	Particulars	April	May	June	Quarter
	Cash sales	118,000	158,000	98,000	374,000
	Sales on Account:
	February	16,400			16,400
	March	156,800	19,600		176,400
	April	47,200	377,600	47,200	472,000
	May		63,200	505,600	568,800
	June			39,200	39,200
	Total Cash Collection	338,400	618,400	690,000	1,646,800
Req 2-a	Merchandise Purchase Budget
	Particulars	April	May	June
	Budgeted Cost of goods sold	413,000	553,000	343,000
	Add: Desired ending inventory (20% of COGS of next month)	110,600	68,600	54,600
	Total needs	523,600	621,600	397,600
	Less: Opening Inventory	82,600	110,600	68,600
	Required Inventory purchases	441,000	511,000	329,000
Req 2b	Schedule of expected cash disbursement for merchandise purchases
	Particulars	April	May	June	Total
	Beginning accounts payable	109,900			109,900
	April Purchases	220,500	220,500		441,000
	May Purchases		255,500	255,500	511,000
	June Purchases			164,500	164,500
	Total cash disbursement	330,400	476,000	420,000	1,226,400
Req 3	Cash Budget - Garden Sales Inc.
	Particulars	April	May	June	Quarter
	Opening Cash balance	51,000	40,500	40,900	51,000
	Add: Collection from customers	338,400	618,400	690,000	1,646,800
	Total Cash Available	389,400	658,900	730,900	1,697,800
	Less - Cash Disbursement:
	Purchases For Inventory	330,400	476,000	420,000	1,226,400
	Selling expenses	80,000	99,000	60,000	239,000
	Administrative expenses	22,500	38,000	15,400	75,900
	Land Purcahses	-	37,000	-	37,000
	Dividend paid	29,000	-	-	29,000
	Total Cash disbursement	461,900	650,000	495,400	1,607,300
	Excess (deficiency) of cash available over disbursements	(72,500)	8,900	235,500	90,500
	Financing:
	Borrowings	113,000	32,000	-	145,000
	Repayments	-	-	(145,000)	(145,000)
	Interest	-	-	ekkarill92 Next > < Previous Related Solutions Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. 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 ... $600,000 $900,000 $500,000 $400,000 Cost of goods sold ... 420,000... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 640,000 $ 1,140,000 $ 600,000 $ 500,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 690,000 $ 860,000 $ 570,000 $ 470,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 710,000 $ 880,000 $ 590,000 $ 490,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 520,000 $ 720,000 $ 420,000 $ 320,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 540,000 $ 740,000 $ 440,000 $ 340,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 620,000 $ 810,000 $ 520,000 $ 420,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 640,000 $ 1,140,000 $ 600,000 $ 500,000 Cost of goods sold... Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.... 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 $ 780,000 $ 940,000 $ 640,000 $ 550,000 Cost of goods sold... ADVERTISEMENT Subjects Accounting Advanced Math Anatomy and Physiology Biology Chemistry Civil Engineering Computer Science Economics Electrical Engineering Finance History Math Mechanical Engineering Operations Management Physics Psychology Statistics and Probability Nursing Other ADVERTISEMENT Latest Questions You are the CEO of United Airlines and you have had a pretty difficult month. First,... 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