E 14. Tex Kinkaid’s dream was to develop the biggest produce operation with the widest selection of fresh fruits and vegetables in northern Texas. Within three years of opening Minigarden Produce, Inc., Kincaid accomplished his objective.

Kinkaid has asked you to prepare monthly cash budgets for Minigarden Produce for the quarter ended September 30.

Credit sales to retailers in the area constitute 80 percent of Minigarden Produce’s business; cash sales to customers at the company’s retail outlet make up the other 20 percent. Collection records indicate that Minigarden Produce collects payment on 50 percent of all credit sales during the month of sale, 30 percent in the month after the sale, and 20 percent in the second month after the sale.
The company’s total sales in May were $66,000; in June, they were $67,500.
Anticipated sales in July are $69,500; in August, $76,250; and in September, $84,250. The company’s purchases are expected to total $43,700 in July, $48,925 in August, and $55,725 in September. The company pays for all purchases in cash.
Projected monthly costs for the quarter include $1,040 for heat, light, and power; $375 for bank fees; $1,925 for rent; $1,120 for supplies; $1,705 for depreciation of equipment; $1,285 for equipment repairs; and $475 for miscellaneous expenses. Other projected costs for the quarter are salaries and wages of $18,370 in July, $19,200 in August, and $20,300 in September.
The company’s cash balance at June 30 was $2,745. It has a policy of maintaining a minimum monthly cash balance of $1,500.
1. Prepare a monthly cash budget for Minigarden Produce, Inc., for the quarter ended September 30.
2. Should Minigarden Produce anticipate taking out a loan during the quarter?
If so, how much should it borrow, and when?
Budgeted Income Statement