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Below are data from Peekay Chewing Gum Company's operating budgets. The company's financial year ends on 30 June. Quarter 1 Quarter 2 Sales $248,470 $251,539

Below are data from Peekay Chewing Gum Company's operating budgets. The company's financial year ends on 30 June.

Quarter 1 Quarter 2
Sales $248,470 $251,539
Direct material purchases 120,295 128,832
Direct labor 76,500 74,000
Manufacturing overhead 28,000 25,400
Selling and administration expenses 33,500 33,500

Collection from customers

230,500

220,000

Cash payments for purchases 114,000 118,000

Additional data:

Equipment was sold in July for $9,000 and $5,500 in November. Dividends of $6,500 were paid in August. 20% of the selling and administration expenses relate to depreciation expenses. The beginning cash balance was $80 000 and a required minimum cash balance per quarter is $60,000.

The company has a 15% open line of credit for $70 000 with their bank.

Required:

  1. Use this information to make a cash budget for the first two quarters of the year.
  2. Briefly comment on Peekay Chewing Gum Company's expected cashflow position in the first two quarters of the year.
  3. Explain how a flexible budget can overcome the weakness of a static budget.

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