Garden Sales, Incorporated, usually has to borrow money during the second quarter to support peak sales of lawn care equipment during May. It gathered the following information to prepare a cash budget for the quarter. a. Budgeted monthly absorption costing income statements for April-July are: April May June Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expense Administrative expense Total selling and administrative expenses Net operating income $ 610,000 427,000 183,000 $ 800,000 560,000 $ 510,000 357,000 July $ 410,000 287,000 240,000 153,000 123,000 81,000 100,000 61,000 41,000 45,500 126,500 60,800 160,800 38,000 39,000 99,000 80,000 $ 56,500 $ 79,200 $ 54,000 $ 43,000 *Includes $23,000 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 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 $220,000, and March's sales totaled $250,000. 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% are paid in the following month. Accounts payable at March 31 for inventory purchases during March total $112,700. 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 $85,400. f. Dividends of $30,000 will be declared and paid in April. g. Land costing $38,000 will be purchased for cash in May. h. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $40,000 at the end of each month. i. 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 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. 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 merchandise purchases for April, May, and June, and for the quarter in total. 3. Prepare a cash budget for April, May, and June as well as in total for 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.
Alpesh
![Garden Sales, Incorporated, usually has to borrow money during the second quarter to support peak sales of lawn care equipment
during May. It gathered the following information to prepare a cash budget for the quarter:
a. Budgeted monthly absorption costing income statements for April-July are:
April
Sales
Cost of goods sold
$ 610,000
427,000
Gross margin
Selling and administrative expenses:
Selling expense
Administrative expense*
Total selling and administrative expenses
Net operating income
183,000
May
$ 800,000
560,000
240,000
June
$ 510,000
357,000
July
$ 410,000
287,000
153,000
123,000
81,000
100,000
61,000
41,000
45,500
60,800
38,000
39,000
126,500
160,800
99,000
80,000
$ 56,500
$ 79,200
$ 54,000
$ 43,000
*Includes $23,000 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 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 $220,000, and March's sales totaled $250,000.
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% are paid in the following month. Accounts payable at March 31 for inventory purchases during March
total $112,700.
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 $85,400.
f. Dividends of $30,000 will be declared and paid in April.
g. Land costing $38,000 will be purchased for cash in May.
h. The cash balance at March 31 is $52,000; the company must maintain a cash balance of at least $40,000 at the end of each month.
i. 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 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.
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 merchandise purchases for April, May, and June, and for the quarter in total.
3. Prepare a cash budget for April, May, and June as well as in total for the quarter.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7d6feb0c-7f70-4d41-af77-eb9ceee26757%2Fb5653dd6-f304-46d5-8e7c-50e3c3619d78%2F9u6441o_processed.jpeg&w=3840&q=75)
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