Mary Jones is president of Jones Nurseries, Inc. This company has four locations and has been in business for six years. Each retail location offers over 300 varieties of plants and trees. Sam Lilly, the controller, has been asked to prepare a cash budget for the first quarter.

Projected data supporting the budget are summarized below. Collection history for accounts receivable has shown that 30% of all credit sales are collected in the month of the sale, 60 percent in the month following the sale, and 8 percent in the second month following the sale. Two percent of the credit sales are noncollectable. Purchases are all paid for in the month following the purchase. As of December 31, the company had a cash balance of $9,600.

Jones Nurseries
		Sales		Purchases
November	160,000.00
December	200,000.00		86,800.00
January		120,000.00		124,700.00
February		160,000.00		99,440.00
March		140,000.00		104,800.00

Salaries and wages are projected to be $25,200 in January, $33,200 in February, and $21,200 in March. Monthly costs are estimated to be; utilities $4,220, collection fees $1,700, rent $5,300, equipment depreciation $5,440, office supplies $2,480, shop supplies $3,140, and miscellaneous $1,900. Assume monthly costs are paid in the month in which they occurred.

Required:

1. Prepare a cash budget for the first quarter.
2. Should Jones anticipate taking out a loan during the first quarter? How much should be borrowed and when? Note that management maintains a minimum cash balance of $6,000 at all times.

Answer rating: 100% (QA)

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