Problem 5-35

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.

Month	Sales	Month	Sales
January	$901,000	July	$1,503,700
February	$1,009,000	August	$1,503,700
March	$901,000	September	$1,604,500
April	$1,158,600	October	$1,604,500
May	$1,257,200	November	$1,503,700
June	$1,404,500	December	$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.

(the file is attached with the rest of the problem)

Problem 5-35 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. Month Sales January February $901,000 $1,009,000 March $901,000 Month Sales July $1,503,700 August $1,503,700 Septembe r $1,604,500 April $1,158,600 October $1,604,500 May $1,257,200 November $1,503,700 June $1,404,500 December $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 $1,572,800 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 $ 329,900 Advertising 374,100 Property taxes 140,000 Insurance 194,600 Utilities 183,500 Depreciation 350,700 Total $ 1,572,800 Operating income for the first quarter of the coming year is projected to be $322,400. 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 $59,400. 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 Apri l Ma y Jun e $ $ $ $ $ $ February sales March sales April sales May sales Totals Accounts Receivable balance at the end of second quarter of 2012 LINK TO TEXT 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 Apri l $ April COGS Ma y June $ $ May COGS June COGS July COGS $ $ $ Totals LINK TO TEXT 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 Apri Ma June l y $ $ $ $ $ $ March purchases April purchases May purchases June purchases $ Accounts Payable balance at the end of second quarter of 2012 LINK TO TEXT 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 Apri Ma l y Beginning Cash balance Financing: $ $ June $ Quarte r $ $ Ending Cash Balance LINK TO TEXT $ $ $