Cash Budget

The Wister Company is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales 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	$ 720,000	$ 890,000	$ 600,000	$ 500,000
Cost of goods sold	504,000	623,000	420,000	350,000
Gross margin	216,000	267,000	180,000	150,000
Selling and administrative expenses:
Selling expense	90,000	109,000	71,000	50,000
Administrative expense*	50,000	68,000	44,000	48,000
Total selling and administrative expenses	140,000	177,000	115,000	98,000
Net operating income	$ 76,000	$ 90,000	$ 65,000	$ 52,000

*Includes $32,000 of depreciation each month.

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

Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February's sales totaled $280,000, and March's sales totaled $295,000.

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 $133,000.

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 $100,800.

Dividends of $39,000 will be declared and paid in April.

Land costing $47,000 will be purchased for cash in May.

The cash balance at March 31 is $61,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

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 merchandise purchases budget for April, May, and June.
• 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.

4. Indicate the monthly and quarterly surplus or deficit.