Cosimo runs a business in Sydney and asks for help preparing a cash budget. He estimated the cash balance at the end of June would be $105,000. He has provided a breakdown of the revenue figures for May and June and an estimate for July and August. He has found that his credit customers generally pay their accounts in the three months after the sale. 60 percent is collected in the month of sale, 35 percent in the following month and the balance the month after that.

Cosimo has budgeted for selling and administrative expenses on a monthly basis at $154,000 a month. He will be buying and installing new equipment for $175,000. There is an initial outlay of $35,000 in July with the remainder due after installation in October. With the need to cover unexpected expenses Cosimo tries to keep a minimum cash balance of $ 105,000. He anticipates during the dry season an increase in sales and so he decides to build up his inventory to meet the demand. He orders new stock at a cost of $105,000 which will be delivered in June with settlement paid in July.

May June July August

Cash Sales $110,250 $106,750 $126,000 105,000

Credit Sales $157,500 $192,500 $227,500 $140,000

Total $267,750 $299,250 $353,500 $245,000

1) Show in a table how much credit customers pay in July and August.

2) Provide a cash budget for July and August.

3) Write notes for Cosimo showing his cash position over July and August and provide him with advice about his financing requirements if there is a cash shortfall or investment opportunities if there is a surplus.