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