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: Budgeted monthly absorption costing income statements for April–July is: April May June July Sales $ 500,000 $ 700,000 $ 400,000 $ 300,000 Cost of goods sold 350,000 490,000 280,000 210,000 Gross margin 150,000 210,000 120,000 90,000 Selling and administrative expenses: Selling expense 70,000 90,000 51,000 30,000 Administrative expense* 40,000 52,800 32,000 28,000 Total selling and administrative expenses 110,000 142,800 83,000 58,000 Net operating income $ 40,000 $ 67,200 $ 37,000 $ 32,000 *Includes $12,000 of depreciation each month. Sales are 20% for cash and 80% on account. 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 $140,000, and March’s sales totaled $200,000. 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 $91,000. 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 $70,000. Dividends of $20,000 will be declared and paid in April. Land costing $28,000 will be purchased for cash in May. The cash balance at March 31 is $42,000; the company must maintain a cash balance of at least $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. 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. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total. Schedule of Expected Cash Collections April May June Quarter Cash sales $100,000 $140,000 $80,000 $320,000 Sales on account: February 22,400 22,400 March 128,000 160,000 288,000 April 40,000 320,000 40,000 400,000 May 56,000 448,000 504,000 June 32,000 32,000 Total cash collections $290,400 $676,000 $600,000 $1,566,400 Prepare the following for merchandise inventory, a merchandise purchases budget for April, May, and June. Merchandise Purchases Budget April May June Budgeted cost of goods sold $350,000 $490,000 $280,000 Add: Desired ending merchandise inventory 98,000 56,000 42,000 Total needs 448,000 546,000 322,000 Less: Beginning merchandise inventory 91,000 98,000 56,000 Required inventory purchases $357,000 $448,000 $266,000 Prepare the following for merchandise inventory, a 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 $49,000 $49,000 April purchases 178,500 178,500 357,000 May purchases 224,000 224,000 448,000 June purchases 133,000 133,000 Total cash disbursements $227,500 $402,500 $357,000 $987,000 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. Cash Budget For the Quarter Ended June 30 April May June Quarter Beginning cash balance $42,000 $40,000 $40,000 $122,000 Add collections from customers 290,400 676,000 600,000 1,566,400 Total cash available 332,400 716,000 640,000 1,688,400 Less cash disbursements: Purchases for inventory Selling expenses Administrative expenses Land purchases Dividends paid Total cash disbursements 0 0 0 0 Excess (deficiency) of cash available over disbursements 332,400 716,000 640,000 1,688,400 Financing: Borrowings Repayment Interest Total financing 0 0 0 0 Ending cash balance $332,400 $716,000 $640,000 $1,688,400
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.
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
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Budgeted monthly absorption costing income statements for April–July is:
| April | May | June | July | |||||
| Sales | $ | 500,000 | $ | 700,000 | $ | 400,000 | $ | 300,000 |
| Cost of goods sold | 350,000 | 490,000 | 280,000 | 210,000 | ||||
| Gross margin | 150,000 | 210,000 | 120,000 | 90,000 | ||||
| Selling and administrative expenses: | ||||||||
| Selling expense | 70,000 | 90,000 | 51,000 | 30,000 | ||||
| Administrative expense* | 40,000 | 52,800 | 32,000 | 28,000 | ||||
| Total selling and administrative expenses | 110,000 | 142,800 | 83,000 | 58,000 | ||||
| Net operating income | $ | 40,000 | $ | 67,200 | $ | 37,000 | $ | 32,000 |
*Includes $12,000 of
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Sales are 20% for cash and 80% on account.
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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 $140,000, and March’s sales totaled $200,000.
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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 $91,000.
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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 $70,000.
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Dividends of $20,000 will be declared and paid in April.
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Land costing $28,000 will be purchased for cash in May.
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The cash balance at March 31 is $42,000; the company must maintain a cash balance of at least $40,000 at the end of each month.
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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.
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.
Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.
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Prepare the following for merchandise inventory, a merchandise purchases budget for April, May, and June.
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Prepare the following for merchandise inventory, a schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.
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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.)
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A cash budget is a financial planning tool that helps businesses and individuals to forecast and manage their cash inflows and outflows over a specific period, usually a month, quarter or year.
The cash budget provides an estimate of a company's cash receipts and payments and the net cash balance for a given period. It helps to identify periods when the company may experience cash shortages or surpluses, allowing management to make appropriate decisions to address these issues.
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