GrowMaster Products, a rapidly growing distributor of home
gardening equipment, is formulating its plans for the coming year.
Carol Jones, the firm’s marketing director, has completed the
following sales forecast.
Month
|
|
Sales
|
|
Month
|
|
Sales
|
January
|
|
$900,000
|
|
July
|
|
$1,500,000
|
February
|
|
$1,000,000
|
|
August
|
|
$1,500,000
|
March
|
|
$900,000
|
|
September
|
|
$1,600,000
|
April
|
|
$1,150,000
|
|
October
|
|
$1,600,000
|
May
|
|
$1,250,000
|
|
November
|
|
$1,500,000
|
June
|
|
$1,400,000
|
|
December
|
|
$1,700,000
|
Phillip Smith, an accountant in the Planning and Budgeting
Department, is responsible for preparing the cash flow projection.
He has gathered the following information.
●
|
All sales are made on credit.
|
●
|
GrowMaster’s excellent record in accounts receivable collection
is expected to continue, with 60% of billings collected in the
month after sale and the remaining 40% collected two months after
the sale.
|
●
|
Cost of goods sold, GrowMaster’s largest expense, is estimated
to equal 40% of sales dollars. Seventy percent of inventory is
purchased one month prior to sale and 30% during the month of sale.
For example, in April, 30% of April cost of goods sold is purchased
and 70% of May cost of goods sold is purchased.
|
●
|
All purchases are made on account. Historically, 75% of accounts
payable have been paid during the month of purchase, and the
remaining 25% in the month following purchase.
|
●
|
Hourly wages and fringe benefits, estimated at 30% of the
current month’s sales, are paid in the month incurred.
|
●
|
General and administrative expenses are projected to be
$1,550,000 for the year. A breakdown of the expenses follows. All
expenditures are paid monthly throughout the year, with the
exception of property taxes, which are paid in four equal
installments at the end of each quarter.
|
Salaries and fringe benefits
|
|
$
|
324,000
|
Advertising
|
|
|
372,000
|
Property taxes
|
|
|
136,000
|
Insurance
|
|
|
192,000
|
Utilities
|
|
|
180,000
|
Depreciation
|
|
|
346,000
|
Total
|
|
$
|
1,550,000
|
●
|
Operating income for the first quarter of the coming year is
projected to be $320,000. GrowMaster is subject to a 40% tax rate.
The company pays 100% of its estimated taxes in the month following
the end of each quarter.
|
●
|
GrowMaster maintains a minimum cash balance of $50,000. If the
cash balance is less than $50,000 at the end of the month, the
company borrows against its 12% line of credit in order to maintain
the balance. All borrowings are made at the beginning of the month,
and all repayments are made at the end of the month (in increments
of $1,000). Accrued interest is paid in full with each principal
repayment. The projected cash balance on April 1 is $50,000.
PREPARE THE CASH RECIEPT BUDGET, CASH PAYMENTS BUDGET, AND CASH
BUDGET FOR THE FOLLOWING QUARTER (APRIL,MAY, AND JUNE)
|
|
|