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 June Apri May July 630,000 1,130,000 590,000 490,000 Sales Cost of goods sold 441,000 791,000 413,000 343,000 Gross margin 177,000 147,000 189,000 339,000 Selling and administrative expenses: Selling expense 117,000 108,000 70,000 49,000 Administrative expense 49,500 67,200 43,400 47,000 96,000 Total selling and administrative expenses 175,200 113,400 166,500 22,500 163,800 63,600 51,000 Net operating income Includes $31,000 of depreciation each month. b. Sales are 20% for cash and 80% on account c. 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 $275,000, and March's sales totaled $290,000 d 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 $125,300 e. 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 $88,200 f. Dividends of $38,000 will be declared and paid in April. g. Land costing $46,000 will be purchased for cash in May h. The cash balance at March 31 is $60,000; the company must maintain a cash balance of atleast $40,000 at the end of each month. i. 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. The company's president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows