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 AprilJuly are:

	April		May		June		July
Sales	$	670,000	$	840,000	$	550,000	$	450,000
Cost of goods sold		469,000		588,000		385,000		315,000
Gross margin		201,000		252,000		165,000		135,000
Selling and administrative expenses:
Selling expense		85,000		104,000		66,000		45,000
Administrative expense*		47,500		64,000		40,400		43,000
Total selling and administrative expenses		132,500		168,000		106,400		88,000
Net operating income	$	68,500	$	84,000	$	58,600	$	47,000

*Includes $27,000 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. Februarys sales totaled $255,000, and Marchs sales totaled $270,000.
d.	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 $122,500.
e.	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 $93,800.
f.	Dividends of $34,000 will be declared and paid in April.
g.	Land costing $42,000 will be purchased for cash in May.
h.	The cash balance at March 31 is $56,000; 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.

3. 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.) Answer is complete but not entirely correct. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April May June Quarter 40,700 $ 56,000 Beginning cash balance Add collections from customers Total cash available Less cash disbursements 56,000S 379,600 435,600 40,200 $ 653,600 693,800 731,6001,764,800 1,820,800 772,300 459,200 66,000 13,400 Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Total cash disbursements Excess (deficiency) of cash available over disbursements 6255,000 70,900 42,000 34,000 401,900 1,418,900 85,000 20,500 104,000 37,000 42,000 34,000 139,500 296,100 183,000 510,800 538.600 233,700 Financing: 113,000 50,000 163,000 Borrowings Repayment Interest Total financing 50,000 560,800 S 163,000 233,700 $1,581,900 113,000 Ending cash balance 409,100 S