# Managerial Accounting P9-16 Garden Sales, Inc. sells garden supplies (Cash Budget)

Managerial Accounting

Problem 9-16 Cash Budget with Supporting Schedules
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:

April
May
June
July
Sales
600,000
900,000
500,000
400,000
Cost of Goods Sold
420,000
630,000
350,000
280,000
Gross Margin
180,000
270,000
150,000
120,000
79,000
120,000
62,000
51,000
45,000
52,000
41,000
38,000
124,000
172,000
103,000
89,000
Net Operating Income
\$      56,000
\$      98,000
\$      47,000
\$        31,000
*Include \$20,000 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, 20% collected in the second month following month of sale.  February sales totaled \$200,000; March sales totaled \$300,000
d.  Inventory purchases are paid for within 15 days.  Therefore 50% of a month's inventory purchases are paid within the month of purchase.  The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total \$126,000.
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 \$49,000 will be declared and paid in April.

g. Land costing \$16,000 will be purchases for cash in May.

h.  The cash balance at March 31 is \$52,000; the company must maintain a balance of at least \$40,000.

Required:

1. Prepare a schedule of expected cash collections for April, May, June and for the quarter in total.
2. Prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, June.

b. A schedule of expected cash disbursements for merchandise purchases for April, May, June and for the quarter in total.
3. Prepare a cash budget for April, May, June as well as in total for the quarter.  Show borrowings from the company's bank and repaymens to the bank as needed to maintain the minimum cash balance.