Kerrigan Limited applies the cost-based pricing and prices the goods at the cost of goods sold plus 60%. The company pays 40% of purchases in cash in the month of purchase with the balance paid the following month. The desired inventory level is 30% of next month's cost of goods sold. Kerrigan Limited also pays $6,800 rent and $5,650 in salaries on a monthly basis. The sales of Kerrigan Limited was $30,000, $34,000 and $38,000 in April, May and June, respectively. Based on industry analysis, the manager of Kerrigan Limited estimate 5% increases in sales per month in the next 12 months. In addition, the manager estimate that cash is collected from customers in the following manner: Month of sale (2% cash discount)30% Month following sale50% Two months following sale15% Amount uncollectible5% Required: [show all workings and, where necessary, round to 2 decimal places]

1. Prepare a sales and purchases budget for August, September and October. [4 marks]

2. Prepare a cash budget for August, September and October if the cash balance is $15,000 as the beginning of August. [6 marks]