How do you find the 'borrowings' for question number 3?
a. Budgeted monthly absorption costing income statements for April-July are: April May June July Sales $600,000 $900,000 $500,000 $400,000 Cost of Goods Sold (70% of Sales) 420,000 630,000 350,000 280,000 Gross Margin $180,000 $270,000 $150,000 $120,00 Selling & Administrative Expenses: Selling Expense $79,000 $120,000 $62,000 $51,000 Administrative Expense* 45,000 52,000 41,000 38,000 Total S & A Expense $124,000 $172,000 $103,000 $89,000 Net Operating Income $56,000 $98,000 $47,000 $31,00 * Includes $20,000 of depreciation expense 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 $200,000 and March's sales totaled $300,000. 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 $126,000. 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 $84,000. f. Dividends of $49,000 will be declared and paid in April g. Land costing $16,000 will be purchased for cash in May. h . The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $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, June as well as in total for the quarter. Garden Sales, Inc. Cash Budget For the Quarter Ended June 30th April May June Total Beginning Cash Balance $52,000 $40,000 $40,000 $52,000 Cash collections from sales 368,000 636,000 740,000 1,744,000 Cash available for use $420,000 $676,000 $780,000 $1,796,000 Disbursements Payments for merchandise inventory $357,000 $518,000 $455,000 $1,330,000 Payments for administrative Expense 25,000 32,000 21,000 78,000 Payments for selling expense (assumed?) 79,000 120,000 62,000 261,000 Dividends paid 49,000 49,000 Cash purchase of land 16,000 16,000 Total disbursements $510,000 $686,000 $538,000 $1,734,000 Excess of cash available (deficiency) ($90,000) ($10,000) $242,000 $62,000 Financing Actual borrowings 130,000 50,000 180,000 Principal repayment (180,000) (180,000) Interest payment (4,900) (4,900) Ending cash balance $40,000 $40,000 $57,100 $57,100 Minimum ending cash balance $40,000 $40,000 $40,000 $40,000 Minimum borrowings (repayments possible) ($130,000) ($50,000) $202,000
