Problem 8-22 Cash Budget with Supporting Schedules [LO8-2, LO8-4, LO8-8] Garden
ID: 2564012 • Letter: P
Question
Problem 8-22 Cash Budget with Supporting Schedules [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:
Sales on account are collected over a three-month period with 10% collected in the month of sale; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. February’s sales totaled $165,000, and March’s sales totaled $225,000.
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 $101,500.
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 $77,000.
The cash balance at March 31 is $47,000; the company must maintain a cash balance of atleast $40,000 at the end of each month.
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.
Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.
Prepare the following for merchandise inventory:
A merchandise purchases budget for April, May, and June.
A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.
Prepare a cash budget for April, May, and June as well as in total for the quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
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:
Explanation / Answer
Solution:
1) Schedule of Expected Cash Collections
Calculation of Cash Sales and On Account Sales
April
May
June
Total Budgeted Sales
$550,000
$750,000
$450,000
Cash Sales (20%)
$110,000
$150,000
$90,000
Sales on Credit (80%)
$440,000
$600,000
$360,000
Schedule of Expected Cash Collections
April
May
June
Quarter
Cash Sales
$110,000
$150,000
$90,000
Sales on account:
February
$13,200
(165,000*80%*10%)
March
$144,000
(225,000*80%*80%)
$18,000
(225,000*80%*10%)
April
$44,000
(440,000*10%)
$352,000
(440,000*80%)
$44,000
(440,000*10%)
May
$60,000
($600,000*10%)
$480,000
($600,000*80%)
June
$36,000
(360,000*10%)
Total Cash Collections
$311,200
$580,000
$650,000
$1,541,200
2-a) Merchandise purchases budget for April, May, and June.
Merchandise Purchases Budget
April
May
June
Quarter
Budgeted cost of goods sold
385000
525000
315000
Plus: Ending balance of inventory
(20% of Next month's COGS)
105000
(525000*20%)
63000
(315,000*20%)
49000
(July 245,000*20%)
Total needs
490000
588000
364000
Less: Beginning balance of inventory (Ending balance of last month)
77000
105000
63000
Required inventory purchases
413000
483000
301000
1197000
2-b) Schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total
Schedule of Expected Cash Disbursements for Merchandise Purchases
April
May
June
Quarter
Beginning Accounts Payable
$101,500
(given)
April Purchases
$206,500
(413,000/2)
$206,500
(413000/2)
May Purchases
$241,500
(483000/2)
$241,500
(483000/2)
June Purchases
$150,500
(301000/2)
Total Cash disbursements
$308,000
$448,000
$392,000
$1,148,000
3) Cash Budget
Cash Budget
For the Quarter Ended June 30
April
May
June
Quarter
Beginning cash balance
$47,000
$40,700
$40,900
$47,000
Add collections from customers (from part 1)
$311,200
$580,000
$650,000
$1,541,200
Total cash available
$358,200
$620,700
$690,900
$1,588,200
Less: Cash disbursements
Purchase of inventory (from part 2b)
$308,000
$448,000
$392,000
$1,148,000
Selling expenses (given)
$75,000
$95,000
$56,000
$226,000
Administrative Expenses
(excluding depreciation since depreciation is a non cash item)
$25,500
$39,800
$18,000
$83,300
Land Purchases
$0
$33,000
$0
$33,000
Dividend Paid
$25,000
$0
$0
$25,000
Total cash disbursements
$433,500
$615,800
$466,000
$1,515,300
Excess (deficiency) of cash available over disbursements
-$75,300
$4,900
$224,900
$72,900
Financing:
Borrowings
$116,000
$36,000
$152,000
Repayments
-$152,000
-$152,000
Interest (Refer calculation below)
-$4,200
-$4,200
Total Financing
$116,000
$36,000
-$152,000
$0
Ending Cash Balance
$40,700
$40,900
$72,900
$72,900
Note --- Interest (116,000*3 months*1%) + (36,000*1%*2) = $4,200
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Calculation of Cash Sales and On Account Sales
April
May
June
Total Budgeted Sales
$550,000
$750,000
$450,000
Cash Sales (20%)
$110,000
$150,000
$90,000
Sales on Credit (80%)
$440,000
$600,000
$360,000
Schedule of Expected Cash Collections
April
May
June
Quarter
Cash Sales
$110,000
$150,000
$90,000
Sales on account:
February
$13,200
(165,000*80%*10%)
March
$144,000
(225,000*80%*80%)
$18,000
(225,000*80%*10%)
April
$44,000
(440,000*10%)
$352,000
(440,000*80%)
$44,000
(440,000*10%)
May
$60,000
($600,000*10%)
$480,000
($600,000*80%)
June
$36,000
(360,000*10%)
Total Cash Collections
$311,200
$580,000
$650,000
$1,541,200