Garden Sales, Incorporated, usually has to borrow money during the second quarter to support peak sales of lawn care equipment during May. It gathered the following information to prepare a cash budget for the quarter:
|Sales||$ 730,000||$ 1,190,000||$ 650,000||$ 560,000|
|Cost of goods sold||511,000||833,000||455,000||392,000|
|Selling and administrative expenses:|
|Total selling and administrative expenses||184,500||188,200||123,000||109,000|
|Net operating income||$ 34,500||$ 168,800||$ 72,000||$ 59,000|
*Includes $37,000 of depreciation each month.
The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows: