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Problem 5-35 (Part Level Submission)

GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm?s marketing director, has completed the following sales forecast.

MonthSalesMonthSalesJanuary$900,000July$1,500,000February$1,000,000August$1,500,000March$900,000September$1,600,000April$1,150,000October$1,600,000May$1,250,000November$1,500,000June$1,400,000December$1,700,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

?All sales are made on credit.?GrowMaster?s excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.?Cost of goods sold, GrowMaster?s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.?All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month following purchase.?Hourly wages and fringe benefits, estimated at 30 percent of the current month?s sales, are paid in the month incurred.?General and administrative expenses are projected to be $1,540,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits$320,000Advertising370,000Property taxes136,000Insurance190,000Utilities178,000Depreciation346,000Total$1,540,000