# Problem 5-35

Problem 5-35

Oriole Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firm?s marketing director, has completed the following sales forecast.

 Month Sales Month Sales January \$905,500 July \$1,503,100 February \$1,000,200 August \$1,503,100 March \$905,500 September \$1,602,600 April \$1,154,900 October \$1,602,600 May \$1,254,900 November \$1,503,100 June \$1,407,800 December \$1,707,000

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. ? Oriole?s excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale. ? Cost of goods sold, Oriole?s largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased. ? All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase. ? Hourly wages and fringe benefits, estimated at 30% of the current month?s sales, are paid in the month incurred. ? General and administrative expenses are projected to be \$1,561,500 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 \$ 320,000 Advertising 376,300 Property taxes 144,600 Insurance 191,800 Utilities 180,100 Depreciation 348,700 Total \$ 1,561,500
 ? Operating income for the first quarter of the coming year is projected to be \$320,000. Oriole is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter. ? Oriole 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% 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 \$56,800.

Prepare the cash receipts budget for the second quarter. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

 Cash Receipts Budget April May June Total Cash Receipts February sales \$ \$ \$ \$ March sales April sales May sales Totals \$ \$ \$ \$
 Accounts Receivable balance at the end of second quarter of 2015 \$

Prepare the purchases budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

 Purchases Budget April May June Total Purchases April COGS \$ \$ \$ \$ May COGS June COGS July COGS Totals \$ \$ \$ \$

Prepare the cash payments budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

 Cash Payments Budget April May June March purchases \$ \$ \$ April purchases May purchases June purchases \$ \$ \$
 Accounts Payable balance at the end of second quarter of 2015 \$

Prepare the cash budget for the second quarter. (Round answers to 0 decimal places, e.g. 5,275. Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)