2.

a. Cash budget (in thousands):

hv. Dec. Ian. Feb. Mar. Ap,:

Sales $500 $600 Collections, current month's sales Collections, previous month's sales Collections, previous 2 months' sales Total cash receipts Purchases Payment for purchases Labor costs Other expenses Total cash disbursements Receipts less disbursements Jan. Feb. Mar.

Additional borrowings $ 20 $220 ($240)

Cumulative borrowings 420 640 400 The amount of financing peaks in February owing to the need to pay for purchases made the previous month and higher labor costs. In March, substantial collections are made on the prior month's billings, causing a large net cash inflow sufficient to pay off the additional borrowings.