Question

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:...

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March 31:

Cash

$

7,600

Accounts receivable

$

20,400

Inventory

$

40,200

Building and equipment, net

$

128,400

Accounts payable

$

23,925

Capital stock

$

150,000

Retained earnings

$

22,675

The gross margin is 25% of sales.

Actual and budgeted sales data:

  

March (actual)

$

51,000

April

$

67,000

May

$

72,000

June

$

97,000

July

$

48,000

  

Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

Monthly expenses are as follows: commissions, 12% of sales; rent, $2,400 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $963 per month (includes depreciation on new assets).

Equipment costing $1,600 will be purchased for cash in April.

Management would like to maintain a minimum cash balance of at least $4,000 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 $20,000. 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.

  

Required:

Using the data above:

1. Complete the following schedule.

Schedule of Expected Cash Collections

April

May

June

Quarter

Cash sales

$40,200

Credit sales

20,400

Total collections

$60,600

$0

$0

$0

2. Complete the following:

Merchandise Purchases Budget

April

May

June

Quarter

Budgeted cost of goods sold

$50,250

Add desired ending inventory

43,200

Total needs

93,450

0

0

0

Less beginning inventory

40,200

Required purchases

$53,250

$0

$0

$0

Schedule of Expected Cash Disbursements—Merchandise Purchases

April

May

June

Quarter

March purchases

$23,925

$23,925

April purchases

26,625

26,625

53,250

May purchases

June purchases

Total disbursements

$50,550

$26,625

$0

$77,175

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