Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows:

• Collections from customers: January $246,500, February $435,000.
• Payments for direct materials: January $155,000, February $240,000
• Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred.
• Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred.
• Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred.
• Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000.

Instructions

(a) Prepare a cash budget for January and February.

(b) Martin Companys chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows:

• Collections from customers: $375,000
• Payments for direct materials: $206,000
• Direct labor: Wages paid in March $116,000
• Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000.
• Selling and administrative expenses: $51,600. This cost is exclusive of depreciation.
• Marketable securities of $50,000 can be sold if needed for additional cash.

1. Prepare a cash budget for March assuming that the company does not sell the marketable securities.
2. What is the maximum amount the company can borrow during March? Does this provide the company with an adequate ending cash balance?
3. How much does the company need to borrow if the marketable securities are sold?
4. Comment on the status of the companys cash budget for March.