| Problem 5-35 GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firms marketing director, has completed the following sales forecast. | Month | Sales | Month | Sales | | January | $908,300 | July | $1,504,200 | | February | $1,005,800 | August | $1,504,200 | | March | $908,300 | September | $1,606,500 | | April | $1,153,500 | October | $1,606,500 | | May | $1,252,100 | November | $1,504,200 | | June | $1,409,900 | December | $1,707,200 | 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. | | GrowMasters 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, GrowMasters 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 months sales, are paid in the month incurred. | | General and administrative expenses are projected to be $1,561,000 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 | $ | 321,600 | | Advertising | 373,600 | | Property taxes | 141,700 | | Insurance | 190,500 | | Utilities | 180,800 | | Depreciation | 352,800 | | Total | $ | 1,561,000 | | Operating income for the first quarter of the coming year is projected to be $323,700. GrowMaster is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter. | | GrowMaster maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $51,500. | |
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| Prepare the cash receipts budget for the second quarter.(Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) | Cash Receipts Budget | | April | May | June | | February sales | $ | $ | $ | | March sales | | | | | April sales | | | | | May sales | | | | | Totals | $ | $ | $ | | Accounts Receivable balance at the end of second quarter of 2012 | $ |
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| Prepare the purchases budget for the second quarter.(Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) | Purchases Budget | | | April | May | June | | April COGS | $ | $ | $ | | May COGS | | | | | June COGS | | | | | July COGS | | | | | Totals | $ | $ | $ | |
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| Prepare the cash payments budget for the second quarter.(Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) | Cash Payments Budget | | April | May | June | | March purchases | $ | $ | $ | | April purchases | | | | | May purchases | | | | | June purchases | | | | | $ | $ | $ | | Accounts Payable balance at the end of second quarter of 2012 | $ |
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| Prepare the cash budget for the second quarter.(Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.) | Cash Budget | | April | May | June | Quarter | | Beginning Cash balance | $ | $ | $ | $ | | InterestCollection from SalesAdvertisingRepaymentsPayments for inventoryInsuranceIncome taxesSalariesProperty taxesBorrowingsUtilitiesWages | | | | | | disbursementsTotal cash available to spendTotal cash disbursementsMinimum cash balanceCash excess (deficiency)Cash excess (needed)Total financing | | | | | | Add:Less:Total cash disbursementsMinimum cash balanceTotal cash available to spendCash excess (deficiency)Cash excess (needed)Total financingdisbursements | | WagesSalariesBorrowingsRepaymentsAdvertisingIncome taxesProperty taxesUtilitiesInterestCollection from SalesPayments for inventoryInsurance | | | | | | BorrowingsWagesCollection from SalesRepaymentsInterestInsuranceIncome taxesPayments for inventorySalariesUtilitiesAdvertisingProperty taxes | | | | | | Income taxesInsuranceUtilitiesBorrowingsAdvertisingInterestRepaymentsCollection from SalesSalariesPayments for inventoryWagesProperty taxes | | | | | | Collection from SalesProperty taxesBorrowingsRepaymentsWagesInterestSalariesUtilitiesIncome taxesPayments for inventoryAdvertisingInsurance | | | | | | SalariesUtilitiesAdvertisingProperty taxesInsuranceRepaymentsIncome taxesWagesBorrowingsInterestCollection from SalesPayments for inventory | | | | | | InsuranceAdvertisingUtilitiesRepaymentsSalariesPayments for inventoryProperty taxesIncome taxesWagesBorrowingsInterestCollection from Sales | | | | | | Collection from SalesIncome taxesRepaymentsWagesUtilitiesInterestBorrowingsPayments for inventoryProperty taxesSalariesAdvertisingInsurance | | | | | | SalariesAdvertisingPayments for inventoryRepaymentsProperty taxesInsuranceWagesUtilitiesIncome taxesBorrowingsInterestCollection from Sales | | | | | | Total cash disbursementsTotal cash available to spenddisbursementsCash excess (deficiency)Minimum cash balanceCash excess (needed)Total financing | | | | | | disbursementsTotal cash available to spendTotal cash disbursementsCash excess (deficiency)Total financingMinimum cash balanceCash excess (needed) | | | | | | Cash excess (needed)Cash excess (deficiency)Minimum cash balanceTotal cash available to spendTotal financingdisbursementsTotal cash disbursements | | | | | | Cash excess (deficiency)Total cash disbursementsTotal financingdisbursementsCash excess (needed)Minimum cash balanceTotal cash available to spend | | | | | | Financing: | | InsuranceUtilitiesIncome taxesInterestCollection from SalesSalariesBorrowingsWagesRepaymentsPayments for inventoryAdvertisingProperty taxes | | | | | | UtilitiesAdvertisingBorrowingsPayments for inventoryCollection from SalesIncome taxesWagesSalariesInsuranceInterestProperty taxesRepayments | | | | | | Property taxesIncome taxesInsuranceInterestCollection from SalesAdvertisingPayments for inventoryBorrowingsUtilitiesWagesRepaymentsSalaries | | | | | | Total financingCash excess (deficiency)Total cash available to spenddisbursementsTotal cash disbursementsMinimum cash balanceCash excess (needed) | | | | | | Ending Cash Balance | $ | $ | $ | $ | |
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