Question

In: Accounting

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:

  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.

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

  2. 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.

  3. 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.

  4. 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.

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

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

  7. 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.

  8. 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.

Solutions

Expert Solution

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                  -                    -  

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
ADVERTISEMENT
ADVERTISEMENT