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Go Blue products, a rapidly growing distribution of home gardening equipment, is formulating its plans for 2013.

Go Blue products, a rapidly growing distribution of home gardening equipment, is formulating its plans for 2013. Daniel Goldschlager, the firms marketing director, has completed the following sales forecast.

Month Sales
January 900,000
February 1,000,000
March 900,000
April 1,150,000
May 1,250,000
June 1,400,000

Month Sales
July 1,500,000
August 1,500,000
September 1,600,000
October 1,600,000
November 1,500,000
December 1,700,000

Angela Blue, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. She has gathered the following information.

- All sales are made on credit.

- Go Blue’s excellent record in account receivable is expected to continue, with 60 percent of the billings collected in the month of the sales and the remaining 40 percent collected two months after the sales.

- Cost of goods sold, which is Go Blue’s largest expense, is estimated to equal 40 percent of sales dollars. Seventy percent of inventory is purchased one month prior to the sales and 30 percent during the month of the sales. For example, in April, 30 percent of April cost of goods sold is purchased and 70 percent of May cost of goods 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 to be 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 expense 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 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 first quarter of 2012 is projected to be 320,000. Go Blue 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.

Go Blue maintains a minimum cash balance of 50,000. If the cash 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 its 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 principle repayment. The projected cash balance on April 1, 2013 is $50,000.

Prepare the cash budget for the second quarter (April, May and June).

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