All labor costs, selling and administration and overhead expenses are paid by cash at the end of each month, whereas the purchase of materials for production are normally paid 50% in the same month of purchase and 50% in the following month.

To restart the operation, suppliers have asked for cash on delivery for the first batch of delivery. Subsequent delivery will then return to the normal payment practice.

All labor involvement in producing buffer inventory will be incurred and paid in the month of production without overtime charge. Production staff will get time-off in the future instead of overtime payment.

a) What are the cash collections from sales in January and February? (6 points)

For January:

For February:

b) What are the payment requirements for materials in January and February? (6 points)

For January:

For February:

c) What are the payment requirements for other expenses (i.e. excluding materials) in January and February? (6 points)

For January:

For February:

d) How much should be the minimum initial cash injection to avoid negative cash flow in the first two months? (2 points)

Master Budget (20 points) ABC is a company in financial trouble and has stopped operation for three months due to cash problem. You are the financial expert to rescue this company. Your task is to analyze the minimum cash required for the initial injection to ensure the company have sufficient cash to operate in the coming TWO months during the restructuring process, allowing the business to pick up again gradually to its maximum capacity. Cash requirement will be revisited after the first 3 months. There was no inventory for any products. The existing management of ABC provides the following to you: Products Projected Sales (unit) by Months in 2017 A B Total Jan 1,500 1,000 3.000 5,500 Feb 5,000 3,000 9,000 17,000 Mar 6,000 4,000 10,000 20.000 Products Selling Price Unit Cost Cost structure (per unit) Per unit Materials Labour MOH A $300 $100 60 30 10 B $800 $400 160 80 $150 $80 56 16 8 160 Due to cash flow problem, suppliers have taken back all materials inventory therefore there is no materials inventory in hand. Cash collection trends from sales are as follows: Cash Sales Pay 1 month laterPay 2 months later A, B, &C 30% 50% 20% ABC will ensure that there will be buffer stock produced to meet 100% of the following month's forecasted sales. Its actual fixed sales and administration expense is estimated to be $ 500,000 a month whereas its variable selling and administrative expenses are on average $ 10 per unit sold