Garden Sales, Incorporated, 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:

1. Budgeted monthly absorption costing income statements for AprilJuly are:

	April	May	June	July
Sales	$ 520,000	$ 720,000	$ 420,000	$ 320,000
Cost of goods sold	364,000	504,000	294,000	224,000
Gross margin	156,000	216,000	126,000	96,000
Selling and administrative expenses:
Selling expense	72,000	92,000	53,000	32,000
Administrative expense*	41,000	54,400	33,200	30,000
Total selling and administrative expenses	113,000	146,400	86,200	62,000
Net operating income	$ 43,000	$ 69,600	$ 39,800	$ 34,000

*Includes $14,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.
3. 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 $150,000, and Marchs sales totaled $300,000.
4. 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 $120,400.
5. 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 $72,800.
6. Dividends of $22,000 will be declared and paid in April.
7. Land costing $30,000 will be purchased for cash in May.
8. The cash balance at March 31 is $44,000; the company must maintain a cash balance of at least $40,000 at the end of each month.
9. 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.

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

b. 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.

Schedule of Expected Cash Collections

April May June Quarter

Cash sales $104,000 $144,000 $84,000 $332,000

Sales on account:

February

March

April

May

June

Total cash collections $104,000 $144,000 $84,000 $332,000

2a)

Merchandise Purchases Budget
	April	May	June
Total needs	0	0	0
Required inventory purchases	$0	$0	$0

2b) Schedule of Expected Cash Disbursements for Merchandise Purchases

April May June Quarter

$0

April purchases

May purchases

June purchases

Total cash disbursements $0 $0 $0 $0

Req 3) Garden Sales, Incorporated

Cash Budget

For the Quarter Ended June 30