Managerial Accounting Assignment

Comprehensive Cash Budget (CMA adapted) (LO 4) GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the fi rm's marketing director, has completed the following sales forecast.

Month              Sales                    Month                   Sales
January          $ 900,000               July                      $1,500,000
February        $1,000,000              August                 $1,500,000
March            $ 900,000                September            $1,600,000
April              $1,150,000              October                $1,600,000
May               $1,250,000              November             $1,500,000
June              $1,400,000              December             $1,700,000

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash fl ow projection. He has gathered the following information.

• All sales are made on credit.
• GrowMaster's excellent record in accounts receivable collection is expected to continue, with 60 percent of billings collected in the month after sale and the remaining 40 percent collected two months after the sale.

• Cost of goods sold, GrowMaster's largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30 percent during the month of sale. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods sold is purchased.

• All purchases are made on account. Historically, 75 percent of accounts payable have been paid during the month of purchase, and the remaining 25 percent in the month f ollowing purchase.

• Hourly wages and fringe benefi ts, estimated at 30 percent of the current month's sales, are paid in the month incurred.

• General and administrative expenses are projected to be $1,550,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefi ts   $ 324,000
Advertising                           372,000
Property taxes                      136,000
Insurance                            192,000
Utilities                               180,000
Depreciation                        346,000
Total                                 $1,550,000

• Operating income for the fi rst quarter of the coming year is projected to be $320,000. Grow-Master is subject to a 40 percent tax rate. The company pays 100 percent of its estimated taxes in the month following the end of each quarter.

• GrowMaster maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12 percent line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $50,000.

Required

a. Prepare the cash receipts budget for the second quarter.
b. Prepare the purchases budget for the second quarter.
c. Prepare the cash payments budget for the second quarter.
d. Prepare the cash budget for the second quarter.