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Budgeted monthly absorption costing income statements for April July are April May June July Sales $ 810,000 $ 950,000 $ 650,000 $ 560,000 Cost of goods solD

a. Budgeted monthly absorption costing income statements for AprilAc€?oJuly are:
  April May June July
  Sales $ 810,000   $ 950,000 $ 650,000 $ 560,000
  Cost of goods sold   567,000   665,000   455,000   392,000
  Gross margin   243,000   285,000   195,000   168,000
  Selling and administrative expenses:                
       Selling expense   95,000   114,000   76,000   56,000
       Administrative expense*   52,500   74,200   47,000   53,000
  Total selling and administrative expenses   147,500   188,200   123,000   109,000
  Net operating income $ 95,500   $ 96,800 $ 72,000 $ 59,000
*Includes $37,000 of depreciation each month.


b. 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. FebruaryAc€?cs sales totaled $305,000, and MarchAc€?cs sales totaled $320,000.


Inventory purchases are paid for within 15 days. Therefore, 50% of a monthAc€?cs 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 $146,300.


Each monthAc€?cs 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 $113,400.

f. Dividends of $44,000 will be declared and paid in April.
g. Land costing $56,000 will be purchased for cash in May.

The cash balance at March 31 is $66,000; 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 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 $66,000 $40,700   $66,000
Add collections from customers 454,800      
Total cash available 520,800 40,700 0 66,000
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 520,800 40,700 0 66,000
Total financing 0 0 0 0
Ending cash balance $520,800 $40,700 $0 $66,000

Jun 23 2020 View more View Less

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