Garden Sales, Inc., sells garden supplies. Management is
planning its cash needs for the second quarter. The company usually
has to borrow money during this quarter to support peak sales of
lawn care equipment, which occur during May. The following
information has been assembled to assist in preparing a cash budget
for the quarter:
|a.||Budgeted monthly absorption|
costing income statements for AprilAc??oJuly are:
| Cost of goods|
| Selling and|
| Total selling and|
| Net operating|
|*Includes $37,000 of|
depreciation each month.
|b.||Sales are 20% for cash and 80%|
Sales on account are collected over a three-month period with
10% collected in the month of sale; 70% collected in the first
month following the month of sale; and the remaining 20% collected
in the second month following the month of sale. FebruaryAc??cs sales
totaled $305,000, and MarchAc??cs sales totaled $320,000.
Inventory purchases are paid for within 15 days. Therefore, 50%
of a monthAc??cs inventory purchases are paid for in the month of
purchase. The remaining 50% is paid in the following month.
Accounts payable at March 31 for inventory purchases during March
Each monthAc??cs ending inventory must equal 20% of the cost of the
merchandise to be sold in the following month. The merchandise
inventory at March 31 is $113,400.
|f.||Dividends of $44,000 will be|
declared and paid in April.
|g.||Land costing $56,000 will be|
purchased for cash in May.
The cash balance at March 31 is $66,000; the company must
maintain a cash balance of atleast $40,000 at the end of each
The company has an agreement with a local bank that allows the
company to borrow in increments of $1,000 at the beginning of each
month, up to a total loan balance of $200,000. The interest rate on
these loans is 1% per month and for simplicity we will assume that
interest is not compounded. The company would, as far as it is
able, repay the loan plus accumulated interest at the end of the
Prepare a schedule of expected cash collections for April, May,
and June, and for the quarter in total.
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