Question -
GrowMaster Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the corning year. Carol Jones, the firm's marketing director, has completed the following sales forecast.
|
Month
|
Sales
|
Month
|
Sales
|
|
January
|
$909,900
|
July
|
$1,507,400
|
|
February
|
$1,007,900
|
August
|
$1,507,400
|
|
March
|
$909,900
|
September
|
$1,606,300
|
|
April
|
$1,156,800
|
October
|
$1,606,300
|
|
May
|
$1, 259,900
|
Novem ber
|
$1,507,400
|
|
June
|
$1,405,100
|
December
|
$1,706,700
|
Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow 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 following purchase.
Hourly wages and fringe benefits, estimated at 30 percent of the current month's sales, are paid in the month incurred.
General and administrative expenses are projected to be $1,567,400 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 benefits
|
$320,300
|
|
Advertising
|
378,100
|
|
Property taxes
|
141,100
|
|
Insurance
|
197,600
|
|
Utilities
|
181,200
|
|
Depreciation
|
349,100
|
|
Total
|
$1,567,400
|
Operating income for the first quarter of the coming year is projected to be $322,300. GrowMaster 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 isp aid in full with each principle repayments. The projected cash balance on April 1 is $56,600.
Required - Prepare the cash receipts budget for the second quarter.