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:

Budgeted monthly absorption costing income statements for AprilJuly are:

	April			May			June			July
Sales	$	510,000		$	710,000		$	410,000		$	310,000
Cost of goods sold		357,000			497,000			287,000			217,000
Gross margin		153,000			213,000			123,000			93,000
Selling and administrative expenses:
Selling expense		71,000			91,000			52,000			31,000
Administrative expense*		40,500			53,600			32,600			29,000
Total selling and administrative expenses		111,500			144,600			84,600			60,000
Net operating income	$	41,500		$	68,400		$	38,400		$	33,000

*Includes $13,000 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; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. Februarys sales totaled $145,000, and Marchs sales totaled $205,000.

Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $93,100.

Each months 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 $71,400.

Dividends of $21,000 will be declared and paid in April.

Land costing $29,000 will be purchased for cash in May.

The cash balance at March 31 is $43,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

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.

Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

Schedule of Expected Cash Collections
	April	May	June	Quarter
Cash sales	$102,000	$142,000	$82,000	$326,000
Sales on account:
February	11,600	0	0	11,600
March	131,200	16,400	0	147,600
April	40,800	326,400	40,800	408,000
May	0	56,800	454,400	511,200
June	0	0	32,800	32,800
Total cash collections	$285,600	$541,600	$610,000	$1,437,200

2. Prepare the following for merchandise inventory:

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

Merchandise Purchases Budget
	April	May	June
Budgeted cost of goods sold	$357,000	$497,000	$287,000
Add: Desired ending merchandise inventory	99,400	57,400	43,400
Total needs	456,400	554,400	330,400
Less: Beginning merchandise inventory	71,400	99,400	57,400
Required inventory purchases	$385,000	$455,000	$273,000

A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total

Schedule of Expected Cash Disbursements for Merchandise Purchases
	April	May	June	Quarter
Beginning accounts payable	$93,100	$0	$0	$93,100
April purchases	192,500	192,500	0	385,000
May purchases	0	227,500	227,500	455,000
June purchases	0	0	136,500	136,500
Total cash disbursements	$285,600	$420,000	$364,000	$1,069,600

Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Garden Sales, Inc.
Cash Budget
For the Quarter Ended June 30
	April	May	June	Quarter
Beginning cash balance
Add collections from customers
Total cash available	0	0	0	0
Less cash disbursements:
Purchases for inventory
Selling expenses
Administrative expenses
Land purchases
Dividends paid
Total cash disbursements	0	0	0	0
Excess (deficiency) of cash available over disbursements	0	0	0	0
Financing:
Borrowings
Repayment
Interest
Total financing	0	0	0	0
Ending cash balance	$0	$0	$0	$0