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HOME GNOM ES, Inc. sells decorative supplies for homes and gardens. Cash planning for the April and May is under way. The following information has been assembled to assist in preparing a cash budget for April and May: Budgeted monthly income statements for April to June are as follows: April May June Sales $500,000 $760,000 $400,000 Cost ofgoods sold i i ELM Gross margin 164,000 260,000 120,000 Less: Operating expenses: Selling expense 63,000 95,000 49,000 Administrative expense* Lam $2M 3_2,M O 81 000 _I Total operating expenses @,M 1 7,00 Net income $ 65,000$ 123,000 $ 39,000 Sa|es are 20% for cash and 80% on account. - Sales on account are collected over a twomonth period in the following ratio: 30% collected in the month of sale, 70% collected in the month following sale. March's sales totalled $240,000. At the end of each month, inventory must be on hand equal to 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $67,200 ( ie: 20% x $336,000) Inventory purchases are all on account and are paid as follows: 40% of a month's inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month. Accounts payable at March 31 for inventory purchases during March total $100,800. - Selling expenses are paid in the month they are incurred. - Administrative expenses are paid in the month they are incurred and include $10,000 of depreciation (each month) Dividends of $39,000 will be declared and paid in April. - Equipment costing $15,000 will be purchased for cash in May. The cash balance at March 31 is $70,000; 1. Prepare a schedule of expected cash collections from sales for April and May 2. Prepare the following for merchandise inventory: a) An inventory purchases budget for each of the months April and May. b) A schedule of expected cash disbursements for inventory for each of the months April and May