Below are data from Peekay Chewing Gum Companys operating budgets. The companys 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 prepare a cash budget for the first two quarters of the year. (4 marks)
2. Briefly comment on Peekay Chewing Gum Companys expected cash flow position in the first two quarters of the year. (1.5 marks)

3. Explain how a flexible budget can overcome the weakness of a static budget.