Question
I need help on that parts that are not filled in. Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the
I need help on that parts that are not filled in.
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 | $ | 480,000 | $ | 1,010,000 | $ | 460,000 | $ | 360,000 | ||||
Cost of goods sold | 336,000 | 707,000 | 322,000 | 252,000 | ||||||||
Gross margin | 144,000 | 303,000 | 138,000 | 108,000 | ||||||||
Selling and administrative expenses: | ||||||||||||
Selling expense | 93,000 | 96,000 | 57,000 | 36,000 | ||||||||
Administrative expense* | 43,000 | 57,600 | 35,600 | 34,000 | ||||||||
Total selling and administrative expenses | 136,000 | 153,600 | 92,600 | 70,000 | ||||||||
Net operating income | $ | 8,000 | $ | 149,400 | $ | 45,400 | $ | 38,000 | ||||
|
*Includes $18,000 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; 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 $175,000, and Marchs sales totaled $230,000.
- 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 $98,000.
- 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 $67,200.
- Dividends of $26,000 will be declared and paid in April.
- Land costing $34,000 will be purchased for cash in May.
- The cash balance at March 31 is $48,000; the company must maintain a cash balance of atleast $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.
The companys president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:
1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.
2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $67,200 and accounts payable for inventory purchases at March 31 remains $98,000.
Required:
Required: 1. Using the president's new assumptions in (1) above, 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 S 95,000 S 202,000 s 92,000 Quarter 390,000 Cash sales Sales on account February March 28,000 28,000 165,600 128,800 36,800 0 0 April May June Total cash collections 36.800 36,800 128,800 S 252,800 S 238,800 S S 620,400 2. Using the president's new assumptions in (2) above, prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June June May 707,000 S 322,000 Merchandise Purchases Budget April Budgeted cost of goods sold S 338,000 S Add: Desired ending merchandise inventory Total needs 338,000 Less: Beginning merchandise inventory 67,200 Required inventory purchases S 268.800 S 707,000 322,000 707,000 S 322,000 b. 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 $ 98,000 S 98,000 April purchases 205,100 205,100 410,200 May purchases 315,000 315,000 630,000 June purchases 154,000 154,000 Total cash disbursements $ 303,100 S 520,100 S 469,000 $1.292,200 3. Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.) June Quarter S 48.000 0 48.000 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April May Beginning cash balance S 48.000 Add collections from customers Total cash available 48.000 0 Less cash disbursements: Purchases for inventory Selling expenses 93,000 98,000 Administrative expenses 25,000 Land purchases 34,000 Dividends paid 28,000 Total cash disbursements 144,000 130,000 Excess (deficiency) of cash available over disbursements (96,000) (130,000) Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance S (96.000) S (130,000) 57,000 17,600 246,000 82,200 34,000 20,000 388.200 (340,200) 74,600 (74,600) 0 0 S (74,600) S (340,200) Required: 1. Using the president's new assumptions in (1) above, 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 S 95,000 S 202,000 s 92,000 Quarter 390,000 Cash sales Sales on account February March 28,000 28,000 165,600 128,800 36,800 0 0 April May June Total cash collections 36.800 36,800 128,800 S 252,800 S 238,800 S S 620,400 2. Using the president's new assumptions in (2) above, prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June June May 707,000 S 322,000 Merchandise Purchases Budget April Budgeted cost of goods sold S 338,000 S Add: Desired ending merchandise inventory Total needs 338,000 Less: Beginning merchandise inventory 67,200 Required inventory purchases S 268.800 S 707,000 322,000 707,000 S 322,000 b. 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 $ 98,000 S 98,000 April purchases 205,100 205,100 410,200 May purchases 315,000 315,000 630,000 June purchases 154,000 154,000 Total cash disbursements $ 303,100 S 520,100 S 469,000 $1.292,200 3. Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.) June Quarter S 48.000 0 48.000 Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April May Beginning cash balance S 48.000 Add collections from customers Total cash available 48.000 0 Less cash disbursements: Purchases for inventory Selling expenses 93,000 98,000 Administrative expenses 25,000 Land purchases 34,000 Dividends paid 28,000 Total cash disbursements 144,000 130,000 Excess (deficiency) of cash available over disbursements (96,000) (130,000) Financing: Borrowings Repayments Interest Total financing 0 Ending cash balance S (96.000) S (130,000) 57,000 17,600 246,000 82,200 34,000 20,000 388.200 (340,200) 74,600 (74,600) 0 0 S (74,600) S (340,200)Step by Step Solution
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