Angelo Diaz has decided to go into business selling computer accessories that are popular among university students. He will operate the business in a shopping centre, mostly on weekends. He is trying to organise himself for the start of the first quarter, so he needs to prepare few budgets. Use the following information in order to help him achieve this goal.

Angelo estimates expected sales for January to be 800, February to be 1,200, March to be 2,000 and April to be 3,000. He expects a gross profit ratio of 0.4. He will keep sixty per cent of the next month's sales in the ending finished goods inventory.

Angelo will pay himself a monthly salary of 150. He will pay his best friend 60 to help him with miscellaneous errands. He estimates that general operating costs will be 130 monthly. In addition, since his cousin is the owner of the shopping centre where he will locate his store, he will only pay 100 per month in rent. However, he plans to upgrade his space at the shopping centre, which will cost 500, of which 200 will be paid in January and 300 in February. All other costs must be paid for as incurred. He will begin January with 400 in the bank.

He expects that forty per cent of sales will be paid for in cash. He expects customers will put the rest on credit and pay in instalments in subsequent months.

For the purposes of this assignment, assume the following:

• 30% will be paid in the month of sale and 10% of people who pay in the month of sale will qualify for a 20% discount.
• Another 20% will be received the month following the sale and 5% the second month following the sale.
• 5% of credit sales will never be received.

For the purposes of this Assignment, you can also assume the following:

• Payments for merchandise are made 30% in the month of purchase and 70% the following month.
• Interest is charged at a rate of 24% per year, and payments of interest only are due at end of each quarter.
• All loans are borrowed at the very beginning of the month, and payments are made at the very end of the month.
• Angelo must maintain a minimum cash balance of 1,000.

Required:

Help Angelo by doing the following:

• Prepare schedule of cash receipts for the first quarter.
• Prepare schedule of inventory purchases for the first quarter.
• Prepare schedule of cash disbursements for the first quarter.
• Prepare cash budget for January and February.
• Calculate how much interest is owed on February 28.