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 AprilJuly are:

	April		May		June		July
Sales	$	620,000	$	1,120,000	$	580,000	$	480,000
Cost of goods sold		434,000		784,000		406,000		336,000
Gross margin		186,000		336,000		174,000		144,000
Selling and administrative expenses:
Selling expense		115,000		107,000		69,000		48,000
Administrative expense*		49,000		66,400		42,800		46,000
Total selling and administrative expenses		164,000		173,400		111,800		94,000
Net operating income	$	22,000	$	162,600	$	62,200	$	50,000

*Includes $30,000 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; 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. Februarys sales totaled $270,000, and Marchs sales totaled $285,000.

Inventory purchases are paid for within 15 days. Therefore, 50% of a months 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 $123,200.

Each months 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 $86,800.

Dividends of $37,000 will be declared and paid in April.

Land costing $45,000 will be purchased for cash in May.

The cash balance at March 31 is $59,000; 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

The companys 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:

Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.

The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $86,800 and accounts payable for inventory purchases at March 31 remains $123,200.

Using the presidents 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.)

Garden Sales, Inc. Cash Budget For the Quarter Ended June 30 April May June Quarter Beginning cash balance $59,000 $59,000 Add collections from customers 450,800 816,000 864,000 2,130,800 Total cash available 509,800 816,000 864,000 2,189,800 Less cash disbursements: Purchases for inventory 355,600 596,050 561,400 1,513,050 Selling expenses 115,000 107,000 69,000 291,000 Administrative expenses 19,000 36,400 12,000 67,400 Land purchases 45,000 45,000 Dividends paid 37,000 37,000 Total cash disbursements 526,600 784,450 642,400 1,953,450 Excess (deficiency) of cash available over disbursements (16,800) 31,550 221,600 236,350 Financing: Borrowings 56,800 8,450 65,250 Repayment (58,673) (58,673) Interest 1,873 1,873 Total financing 56,800 8,450 (56,800) 8,450 Ending cash balance $40,000 $40,000 $164,800 $244,800