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 flawn 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 April-July are: Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense* Total selling and administrative expenses Net operating income "Includes $28,000 of depreciation each month. April May June July $ 600,000 $1,100,000 $ 560,000 $ 460,000 420,000 392,000 322,000 180,000 168,000 138,000 770,000 330,000 111,000 105,000 67,000 46,000 64,800 41,600 44,000 48,000 159,000 169,800 108,600 90,000 $ 21,000 $ 160,200 $ 59,400 $ 48,000 b. Sales are 20% for cash and 80% on account. c. 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. February's sales totaled $260,000, and March's sales totaled $275,000. d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's 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 total $119,000. e. Each month's 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 $84,000. f. Dividends of $35,000 will be declared and paid in April. g. Land costing $43,000 will be purchased for cash in May. h. The cash balance at March 31 is $57,000; the company must maintain a cash balance of at least $40,000 at the end of each month. 1. 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 quarter
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
![Problem 8-25 (Algo) Cash Budget with Supporting Schedules; Changing Assumptions [LO8-2, LO8-4,
LO8-8]
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 April-July are:
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expense
Administrative expense*
Total selling and administrative expenses
Net operating income
*Includes $28,000 of depreciation each month.
April
May
June
July
$ 600,000 $1,100,000 $ 560,000 $ 460,000
420,000
770,000 392,000
322,000
180,000
330,000
168,000
138,000
111,000
48,000
159,000
67,000
41,600
105,000
46,000
64,800
44,000
169,800 108,600
90,000
$ 21,000 $ 160,200 $ 59,400 $ 48,000
b. Sales are 20% for cash and 80% on account.
c. 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. February's sales
totaled $260,000, and March's sales totaled $275,000.
d. Inventory purchases are paid for within 15 days. Therefore, 50% of a month's 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
total $119,000.
e. Each month's 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 $84,000.
f. Dividends of $35,000 will be declared and paid in April.
g. Land costing $43,000 will be purchased for cash in May.
h. The cash balance at March 31 is $57,000; the company must maintain a cash balance of at least $40,000 at the end of each month.
1. 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 quarter
The company's president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact
the cash budget. He revises the cash collection and ending inventory assumptions as follows:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb0c53c3c-d25b-4f46-ae7f-d9559756d1d4%2Fdaaaea0f-5c54-420b-838a-c4ac5eb4193f%2F2xonwv_processed.jpeg&w=3840&q=75)
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1. Using the president's new assumptions in (a) above, prepare a schedule of expected cash collections for April, May, and June and for
the quarter in total.
2. Using the president's new assumptions in (b) above, prepare the following for merchandise inventory:
a. A merchandise purchases budget for April, May, and June.
b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total.
3. Using the president's new assumptions, prepare a cash budget for April, May, and June, and
for the quarter in total.
Complete this question by entering your answers in the tabs below.
Req 1
Beginning cash balance
Add collections from customers
Total cash available
Less cash disbursements
Purchases for inventory
Selling expenses
Administrative expenses
Land purchases
Dividends paid
Req 2A
Using the president's new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total. (Cash
deficiency, repayments and interest should be indicated by a minus sign.)
Borrowings
Repayment
Interest
Req 2B
Total financing
Req 3
Total cash disbursements
Excess (deficiency) of cash available over disbursements
Financing:
Answer is not complete.
Garden Sales, Inc.
Cash Budget
For the Quarter Ended June 30
April
S
57,000 S
403,800 X
460,800
344,750
111,000
20,000
35,000 X
510,750
(49,950)
90,000 X
90.000
May
40,050 S
774,000 X
814,050
582,400
105,000
36,800
43,000 X
767,200
46,850
0
June
46,850
844,000
890,850
547,400
67,000
13,600
628,000
262,850
(90,000) X
(1,800) X
(91 800)
$
Quarter
57,000✔
2,021,800 X
2,078,800
1,474,550
283,000✔
70,400
35,000 X
43,000 X
1,905,950
172,850
90,000 X
(90,000) X
(1,800)
(1 800)
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