Garden Sales, Inc., sells garden supplies. Management isplanning its cash needs for the second quarter. The company usuallyhas to borrow money during this quarter to support peak sales oflawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter:
a. Budgeted monthly absorptioncosting income statements for AprilâJuly are:
April May June July Sales $ 550,000 $ 750,000 $ 450,000 $ 350,000 Cost of goodssold 385,000 525,000 315,000 245,000 Gross margin 165,000 225,000 135,000 105,000 Selling andadministrative expenses: Selling expense 75,000 95,000 56,000 35,000 Administrativeexpense* 42,500 56,800 35,000 33,000 Total selling andadministrative expenses 117,500 151,800 91,000 68,000 Net operatingincome $ 47,500 $ 73,200 $ 44,000 $ 37,000
*Includes $17,000 ofdepreciation each month.
b. Sales are 20% for cash and 80%on account. c. Sales on account are collected over a three-month period with10% collected in the month of sale; 80% collected in the firstmonth following the month of sale; and the remaining 10% collectedin the second month following the month of sale. Februaryâs salestotaled $165,000, and Marchâs sales totaled $225,000.
d. Inventory purchases are paid for within 15 days. Therefore, 50%of a monthâs inventory purchases are paid for in the month ofpurchase. The remaining 50% is paid in the following month.Accounts payable at March 31 for inventory purchases during Marchtotal $101,500.
e. Each monthâs ending inventory must equal 20% of the cost of themerchandise to be sold in the following month. The merchandiseinventory at March 31 is $77,000.
f. Dividends of $25,000 will bedeclared and paid in April. g. Land costing $33,000 will bepurchased for cash in May. h. The cash balance at March 31 is $47,000; the company mustmaintain a cash balance of atleast $40,000 at the end of eachmonth.
i. The company has an agreement with a local bank that allows thecompany to borrow in increments of $1,000 at the beginning of eachmonth, up to a total loan balance of $200,000. The interest rate onthese loans is 1% per month and for simplicity we will assume thatinterest is not compounded. The company would, as far as it isable, repay the loan plus accumulated interest at the end of thequarter.
Required: 1. Prepare a schedule of expected cash collections for April, May,and June, and for the quarter in total.
2. Prepare the following for merchandise inventory:
a. A merchandise purchases budget for April, May, and June.
b. A schedule of expected cash disbursements for merchandisepurchases for April, May, and June, and for the quarter intotal.
3. Prepare a cash budget for April, May, and June as well as intotal for the quarter. (Cash deficiency, repayments andinterest should be indicated by a minus sign.)
Garden Sales, Inc., sells garden supplies. Management isplanning its cash needs for the second quarter. The company usuallyhas to borrow money during this quarter to support peak sales oflawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter: |
| a. | Budgeted monthly absorptioncosting income statements for AprilâJuly are: |
| April | May | June | July | |||||
| Sales | $ | 550,000 | $ | 750,000 | $ | 450,000 | $ | 350,000 |
| Cost of goodssold | 385,000 | 525,000 | 315,000 | 245,000 | ||||
| Gross margin | 165,000 | 225,000 | 135,000 | 105,000 | ||||
| Selling andadministrative expenses: | ||||||||
| Selling expense | 75,000 | 95,000 | 56,000 | 35,000 | ||||
| Administrativeexpense* | 42,500 | 56,800 | 35,000 | 33,000 | ||||
| Total selling andadministrative expenses | 117,500 | 151,800 | 91,000 | 68,000 | ||||
| Net operatingincome | $ | 47,500 | $ | 73,200 | $ | 44,000 | $ | 37,000 |
| *Includes $17,000 ofdepreciation each month. |
| b. | Sales are 20% for cash and 80%on account. |
| c. | Sales on account are collected over a three-month period with10% collected in the month of sale; 80% collected in the firstmonth following the month of sale; and the remaining 10% collectedin the second month following the month of sale. Februaryâs salestotaled $165,000, and Marchâs sales totaled $225,000. |
| d. | Inventory purchases are paid for within 15 days. Therefore, 50%of a monthâs inventory purchases are paid for in the month ofpurchase. The remaining 50% is paid in the following month.Accounts payable at March 31 for inventory purchases during Marchtotal $101,500. |
| e. | Each monthâs ending inventory must equal 20% of the cost of themerchandise to be sold in the following month. The merchandiseinventory at March 31 is $77,000. |
| f. | Dividends of $25,000 will bedeclared and paid in April. |
| g. | Land costing $33,000 will bepurchased for cash in May. |
| h. | The cash balance at March 31 is $47,000; the company mustmaintain a cash balance of atleast $40,000 at the end of eachmonth. |
| i. | The company has an agreement with a local bank that allows thecompany to borrow in increments of $1,000 at the beginning of eachmonth, up to a total loan balance of $200,000. The interest rate onthese loans is 1% per month and for simplicity we will assume thatinterest is not compounded. The company would, as far as it isable, repay the loan plus accumulated interest at the end of thequarter. |
| Required: | |
| 1. | Prepare a schedule of expected cash collections for April, May,and June, and for the quarter in total. |
| 2. | Prepare the following for merchandise inventory: |
| a. | A merchandise purchases budget for April, May, and June. |
| b. | A schedule of expected cash disbursements for merchandisepurchases for April, May, and June, and for the quarter intotal. |
| 3. | Prepare a cash budget for April, May, and June as well as intotal for the quarter. (Cash deficiency, repayments andinterest should be indicated by a minus sign.) |
Related questions
Garden Sales, Inc., sells garden supplies. Management isplanning its cash needs for the second quarter. The company usuallyhas to borrow money during this quarter to support peak sales oflawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter: |
| a. | Budgeted monthly absorptioncosting income statements for AprilâJuly are: |
| April | May | June | July | |||||
| Sales | $ | 450,000 | $ | 980,000 | $ | 430,000 | $ | 330,000 |
| Cost of goodssold | 315,000 | 686,000 | 301,000 | 231,000 | ||||
| Gross margin | 135,000 | 294,000 | 129,000 | 99,000 | ||||
| Selling andadministrative expenses: | ||||||||
| Selling expense | 87,000 | 93,000 | 54,000 | 33,000 | ||||
| Administrativeexpense* | 41,500 | 55,200 | 33,800 | 31,000 | ||||
| Total selling andadministrative expenses | 128,500 | 148,200 | 87,800 | 64,000 | ||||
| Net operatingincome | $ | 6,500 | $ | 145,800 | $ | 41,200 | $ | 35,000 |
| *Includes $15,000 ofdepreciation each month. |
| b. | Sales are 20% for cash and 80%on account. |
| c. | Sales on account are collected over a three-month period with10% collected in the month of sale; 70% collected in the firstmonth following the month of sale; and the remaining 20% collectedin the second month following the month of sale. Februaryâs salestotaled $155,000, and Marchâs sales totaled $215,000. |
| d. | Inventory purchases are paid for within 15 days. Therefore, 50%of a monthâs inventory purchases are paid for in the month ofpurchase. The remaining 50% is paid in the following month.Accounts payable at March 31 for inventory purchases during Marchtotal $91,700. |
| e. | Each monthâs ending inventory must equal 20% of the cost of themerchandise to be sold in the following month. The merchandiseinventory at March 31 is $63,000. |
| f. | Dividends of $23,000 will bedeclared and paid in April. |
| g. | Land costing $31,000 will bepurchased for cash in May. |
| h. | The cash balance at March 31 is $45,000; the company mustmaintain a cash balance of atleast $40,000 at the end of eachmonth. |
| i. | The company has an agreement with a local bank that allows thecompany to borrow in increments of $1,000 at the beginning of eachmonth, up to a total loan balance of $200,000. The interest rate onthese loans is 1% per month and for simplicity we will assume thatinterest is not compounded. The company would, as far as it isable, repay the loan plus accumulated interest at the end of thequarter. |
The companyâs president is interested in knowing how reducinginventory levels and collecting accounts receivable sooner willimpact the cash budget. He revises the cash collection and endinginventory assumptions as follows: |
| 1. | Sales continue to be 20% for cash and 80% on credit. However,credit sales from April, May, and June are collected over athree-month period with 25% collected in the month of sale, 65%collected in the month following sale, and 10% in the second monthfollowing sale. Credit sales from February and March are collectedduring the second quarter using the collection percentagesspecified in the main section. |
| 2. | The company maintains its ending inventory levels for April,May, and June at 15% of the cost of merchandise to be sold in thefollowing month. The merchandise inventory at March 31 remains$47,250 and accounts payable for inventory purchases at March 31remains $91,700. |
| Required: | |
| 1. | Using the presidentâs new assumptions in (1) above, prepare aschedule of expected cash collections for April, May, and June andfor the quarter in total. |
| 2. | Using the presidentâs new assumptions in (2) above, prepare thefollowing for merchandise inventory: |
| a. | A merchandise purchases budget for April, May, and June. |
| b. | A schedule of expected cash disbursements for merchandisepurchases for April, May, and June and for the quarter intotal. |
| 3. | Using the presidentâs new assumptions, prepare a cash budget forApril, May, and June, and |
Garden Sales, Inc., sells garden supplies. Management isplanning its cash needs for the second quarter. The company usuallyhas to borrow money during this quarter to support peak sales oflawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter:
| a. | Budgeted monthly absorptioncosting income statements for AprilâJuly are: |
| April | May | June | July | |||||
| Sales | $ | 440,000 | $ | 970,000 | $ | 420,000 | $ | 320,000 |
| Cost of goodssold | 308,000 | 679,000 | 294,000 | 224,000 | ||||
| Gross margin | 132,000 | 291,000 | 126,000 | 96,000 | ||||
| Selling andadministrative expenses: | ||||||||
| Selling expense | 85,000 | 92,000 | 53,000 | 32,000 | ||||
| Administrativeexpense* | 41,000 | 54,400 | 33,200 | 30,000 | ||||
| Total selling andadministrative expenses | 126,000 | 146,400 | 86,200 | 62,000 | ||||
| Net operatingincome | $ | 6,000 | $ | 144,600 | $ | 39,800 | $ | 34,000 |
| *Includes $14,000 ofdepreciation each month. |
| b. | Sales are 20% for cash and 80%on account. |
C. sales on account are collected over a three-month period with10% collected in the month of sale; 70% collected in the firstmonth following the month of sale; and the remaining 20% collectedin the second month following the month of sale. Februaryâs salestotaled $150,000, and Marchâs sales totaled $210,000. | |
| d. | Inventory purchases are paid for within 15 days. Therefore, 50%of a monthâs inventory purchases are paid for in the month ofpurchase. The remaining 50% is paid in the following month.Accounts payable at March 31 for inventory purchases during Marchtotal $89,600. |
| e. | Each monthâs ending inventory must equal 20% of the cost of themerchandise to be sold in the following month. The merchandiseinventory at March 31 is $61,600. |
| f. | Dividends of $22,000 will bedeclared and paid in April. |
| g. | Land costing $30,000 will bepurchased for cash in May. |
h. The cash balance at March 31 is $44,000; the company mustmaintain a cash balance of atleast $40,000 at the end of eachmonth. | |
i. The company has an agreement with a local bank that allowsthe company to borrow in increments of $1,000 at the beginning ofeach month, up to a total loan balance of $200,000. The interestrate on these loans is 1% per month and for simplicity we willassume that interest is not compounded. The company would, as faras it is able, repay the loan plus accumulated interest at the endof the quarter. |
The companyâs president is interested in knowing how reducinginventory levels and collecting accounts receivable sooner willimpact the cash budget. He revises the cash collection and endinginventory assumptions as follows: |
| 1. | Sales continue to be 20% for cash and 80% on credit. However,credit sales from April, May, and June are collected over athree-month period with 25% collected in the month of sale, 65%collected in the month following sale, and 10% in the second monthfollowing sale. Credit sales from February and March are collectedduring the second quarter using the collection percentagesspecified in the main section. |
| 2. | The company maintains its ending inventory levels for April,May, and June at 15% of the cost of merchandise to be sold in thefollowing month. The merchandise inventory at March 31 remains$61,600 and accounts payable for inventory purchases at March 31remains $89,600. |
| Required: | |
| 1. | Using the presidentâs new assumptions in (1) above, prepare aschedule of expected cash collections for April, May, and June andfor the quarter in total. |
| 2. | Using the presidentâs new assumptions in (2) above, prepare thefollowing for merchandise inventory: |
| a. | A merchandise purchases budget for April, May, and June. |
| b. | A schedule of expected cash disbursements for merchandisepurchases for April, May, and June and for the quarter intotal. |
| 3. | Using the presidentâs new assumptions, prepare a cash budget forApril, May, and June, and |
Garden Sales, Inc., sells garden supplies. Management isplanning its cash needs for the second quarter. The company usuallyhas to borrow money during this quarter to support peak sales oflawn care equipment, which occur during May. The followinginformation has been assembled to assist in preparing a cash budgetfor the quarter:
Budgeted monthly absorption costing income statements forAprilâJuly are:
April | May | June | July | |
Sales | $610,000 | $1,110,000 | $570,000 | $470,000 |
Cost of Goods Sold | 427,000 | 777,000 | 399,000 | 329,000 |
Gross Margin | 183,000 | 333,000 | 171,000 | 141,000 |
Selling & Admin. Exp | ||||
Selling Exp | 113,000 | 106,000 | 68,000 | 47,000 |
Admin Exp. * | 48,500 | 65,600 | 42,200 | 45,000 |
Total Selling & Admin Exp. | 161,500 | 171,600 | 110,200 | 92,000 |
Net operating income | $21,500 | $161,400 | $60,800 | $49,000 |
*Includes $29,000 of depreciation each month
b) Sales are 20% for cash and 80% on account.
c) Sales on account are collected over a three-month period with10% collected in the month of sale; 70% collected in the firstmonth following the month of sale; and the remaining 20% collectedin the second month following the month of sale. Februaryâs salestotaled $265,000, and Marchâs sales totaled $280,000.
d) Inventory purchases are paid for within 15 days. Therefore,50% of a monthâs inventory purchases are paid for in the month ofpurchase. The remaining 50% is paid in the following month.Accounts payable at March 31 for inventory purchases during Marchtotal $121,100.
e) Each monthâs ending inventory must equal 20% of the cost ofthe merchandise to be sold in the following month. The merchandiseinventory at March 31 is $85,400.
f) Dividends of $36,000 will be declared and paid in April.
g) Land costing $44,000 will be purchased for cash in May.
h) The cash balance at March 31 is $58,000; the company mustmaintain a cash balance of atleast $40,000 at the end of eachmonth.
i) The company has an agreement with a local bank that allowsthe company to borrow in increments of $1,000 at the beginning ofeach month, up to a total loan balance of $200,000. The interestrate on these loans is 1% per month and for simplicity we willassume that interest is not compounded. The company would, as faras it is able, repay the loan plus accumulated interest at the endof the quarter.
The companyâs president is interested in knowing how reducinginventory levels and collecting accounts receivable sooner willimpact the cash budget. He revises the cash collection and endinginventory assumptions as follows:
1) Sales continue to be 20% for cash and 80% on credit. However,credit sales from April, May, and June are collected over athree-month period with 25% collected in the month of sale, 65%collected in the month following sale, and 10% in the second monthfollowing sale. Credit sales from February and March are collectedduring the second quarter using the collection percentagesspecified in the main section.
2) The company maintains its ending inventory levels for April,May, and June at 15% of the cost of merchandise to be sold in thefollowing month. The merchandise inventory at March 31 remains$64,050 and accounts payable for inventory purchases at March 31remains $121,100.
Required:
1) Using the presidentâs new assumptions in (1) above, prepare aschedule of expected cash collections for April, May, and June andfor the quarter in total.
2) Using the presidentâs new assumptions in (2) above, preparethe following for merchandise inventory:
a) A merchandise purchases budget for April, May, and June.
b) A schedule of expected cash disbursements for merchandisepurchases for April, May, and June and for the quarter intotal.
3) Using the presidentâs new assumptions, prepare a cash budgetfor April, May, and June, and
for the quarter in total. (Cash deficiency, repayments andinterest should be indicated by a minus sign.)
