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		$900,500		July		$1,503,000
February		$1,006,300		August		$1,503,000
March		$900,500		September		$1,607,400
April		$1,152,600		October		$1,607,400
May		$1,254,200		November		$1,503,000
June		$1,408,000		December		$1,704,800

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 $1,562,600 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		$	321,400
Advertising			379,900
Property taxes			141,600
Insurance			193,100
Utilities			179,100
Depreciation			347,500
Total		$	1,562,600

Operating income for the first quarter of the coming year is projected to be $320,500. 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 $57,700.

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.)

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	$	$	$	$
InsuranceInterestSalariesUtilitiesIncome taxesPayments for inventoryBorrowingsRepaymentsWagesCollection from SalesAdvertisingProperty taxes
Total cash available to spendTotal financingdisbursementsTotal cash disbursementsMinimum cash balanceCash excess (deficiency)Cash excess (needed)
Add:Less: Total financingTotal cash available to spendCash excess (needed)disbursementsTotal cash disbursementsCash excess (deficiency)Minimum cash balance
SalariesCollection from SalesAdvertisingIncome taxesBorrowingsInterestPayments for inventoryProperty taxesRepaymentsWagesInsuranceUtilities
AdvertisingCollection from SalesIncome taxesInsuranceWagesProperty taxesPayments for inventoryBorrowingsRepaymentsSalariesInterestUtilities
SalariesProperty taxesIncome taxesBorrowingsUtilitiesInterestRepaymentsPayments for inventoryAdvertisingCollection from SalesInsuranceWages
InterestIncome taxesAdvertisingBorrowingsCollection from SalesProperty taxesRepaymentsPayments for inventoryInsuranceWagesSalariesUtilities
InterestUtilitiesAdvertisingSalariesProperty taxesInsuranceWagesIncome taxesBorrowingsRepaymentsCollection from SalesPayments for inventory
BorrowingsCollection from SalesRepaymentsInterestPayments for inventoryWagesSalariesAdvertisingUtilitiesProperty taxesIncome taxesInsurance
Collection from SalesUtilitiesAdvertisingInsuranceProperty taxesIncome taxesInterestBorrowingsPayments for inventoryRepaymentsWagesSalaries
InsuranceUtilitiesAdvertisingInterestBorrowingsRepaymentsIncome taxesCollection from SalesPayments for inventoryProperty taxesWagesSalaries
Total cash available to spenddisbursementsTotal cash disbursementsCash excess (deficiency)Minimum cash balanceTotal financingCash excess (needed)
Minimum cash balanceTotal cash available to spendTotal cash disbursementsdisbursementsCash excess (needed)Cash excess (deficiency)Total financing
Total cash available to spendTotal financingdisbursementsTotal cash disbursementsCash excess (deficiency)Cash excess (needed)Minimum cash balance
disbursementsTotal cash available to spendTotal cash disbursementsCash excess (deficiency)Cash excess (needed)Minimum cash balanceTotal financing
Financing:
Income taxesUtilitiesPayments for inventoryBorrowingsSalariesRepaymentsProperty taxesWagesInterestCollection from SalesAdvertisingInsurance
Payments for inventoryRepaymentsWagesProperty taxesInterestIncome taxesUtilitiesSalariesAdvertisingInsuranceBorrowingsCollection from Sales
Collection from SalesSalariesAdvertisingInterestPayments for inventoryProperty taxesUtilitiesIncome taxesBorrowingsRepaymentsWagesInsurance
Total financingdisbursementsCash excess (deficiency)Minimum cash balanceTotal cash available to spendCash excess (needed)Total cash disbursements
Ending Cash Balance	$	$	$	$