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Watson Products is a merchandising company that sells baby lotion in New York. The company is about to prepare its budgets for the first quarter of the year 20x2. The following information has been assembled to assist in preparing the companys budgets of the quarter.

a. Account balances from the post-closing trial balance on December 31, 20x1 follows :

	Debit	Credit
Cash	$ 42,000
Account receivable.	369,000
Inventory (8,100 bottles) ...	145,800
Land.	150,000
Building	200,000
Accumulated depreciation Building .........		$ 20,000
Accounts Payable (from inventory purchased)		113,760
Capital Stock.		705,000
Retained Earnings.	________	68,040
	$906,800	$906,800

b. Actual sales and budgeted sales are as follows (selling price per bottle $30) :

Actual Sales				Budgeted Sales
20x1	November	$360,000		20x2	January	$540,000
	December	$420,000			February	$600,000
					March	$750,000
					April	$840,000

Sales are 25% for cash and 75% on credit. Eighty percent (80%) of a months credit sales are collected in the first month after sales, and the remainder 20% are collected in the second month after sales.

c. The Company maintains its ending inventory at 45% of the following months cost of goods sold.

d. The purchase cost per bottle of lotion for the quarter is the same as the inventory on December 31, 20x1. Inventory purchases are paid 60% in the month of purchase, and the remaining balance are paid in the following month.

Inventory purchases of the quarter
20x2	January	$ ?
	February	$ ?
	March	$ ?

e. Monthly operating expenses are budgeted and paid when incurred as follows :

Sales commission. 5% of sales

Delivery expense. 2% of sales

Salaries expense $15,000

Advertising expense. $ 4,000

Depreciation expense $ 2,000

Other expenses. 3% of sales

f. Land will be purchased for cash :

20x2: January $ 100,000

February $ 80,000

g. The company must maintain a minimum cash balance of $40,000. All borrowings are done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only when principal is repaid. The interest rate is 12% per annum.

Example of an answer

6000

1.

Total gross profit of the quarter

Answer

2.

Total operating expenses in the income statement of the first quarter

Answer

3.

Total cash disbursements for operating expenses of the quarter

Answer

4.

Total Inventory purchases for the quarter

Answer

5.

Total cash disbursement for inventory purchases in the first quarter

Answer

6.

Total cash collected from sales in the quarter

Answer

7.

Total cash disbursements of the quarter

Answer

8.

The amount of cash the company will borrow in January

Answer

9.

Total cash repayment will be made in February

Answer

10.

Interest expense in the income statement of the quarter.

Answer

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