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Garden Sales, Incorporated, usually has to borrow money during the second quarter to support peak sales of lawn care equipment during May. It gathered the
Garden Sales, Incorporated, usually has to borrow money during the second quarter to support peak sales of lawn care equipment during May. It gathered the following information to prepare a cash budget for the quarter:
Budgeted monthly absorption costing income statements for AprilJuly are:
April May June July
Sales $ $ $ $
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expense
Administrative expense
Total selling and administrative expenses
Net operating income $ $ $ $
Includes $ of depreciation each month.
Sales are for cash and on account.
Sales on account are collected over a threemonth period with collected in the month of sale, collected in the first month following the month of sale, and the remaining collected in the second month following the month of sale. Februarys sales totaled $ and Marchs sales totaled $
Inventory purchases are paid for within days. Therefore, of a months inventory purchases are paid for in the month of purchase. The remaining are paid in the following month. Accounts payable at March for inventory purchases during March total $
Each months ending inventory must equal of the cost of the merchandise to be sold in the following month. The merchandise inventory at March is $
Dividends of $ will be declared and paid in April.
Land costing $ will be purchased for cash in May.
The cash balance at March is $; the company must maintain a cash balance of at least $ at the end of each month.
The company has an agreement with a local bank that allows the company to borrow in increments of $ at the beginning of each month, up to a total loan balance of $ The interest rate on these loans is per month, and for simplicity we will assume 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:
Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.
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.
Prepare a cash budget for April, May, and June as well as in total for the quarter.
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