Biology Forums - Study Force

Garden Gnomes Company produces various types of lawn ornaments. The company's sales budget for the first four months of the coming year is as follows. All sales are made on credit.

March

April

May

June

Budgeted sales

$550,000

$650,000

$700,000

$620,000

Garden Gnomes is planning to change its credit policies in the coming year. For the first time in its history, the company is offering a 2 percent discount to customers who pay within 15 days of the invoice date. Based on industry trends, Garden Gnomes estimates that this change will result in 60 percent of credit sales being paid within the discount period; another 20 percent of sales, within the month of sale (but outside of the discount period); and another 15 percent of sales, during the month after the sale. An estimated 5 percent of sales will be uncollectible.

Required:

a.	Prepare Garden Gnomes' cash receipts budget for the second quarter of the coming

year.
Omit the heading.

b.	How much cash will Garden Gnomes sacrifice in the second quarter by offering the

new discount?

c.	What do you think led Garden Gnomes to offer the new discount to customers?

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