Morrison Company makes industrial component parts. The company is in the process of negotiating with its bank regarding short-term financing options. The treasurer of the company was told by the bank that money was very tight and that any borrowing over the next quarter would have to be supported by a detailed statement of cash collections and disbursements. The treasurer also was told that it would be very helpful to the bank if borrowers would indicate the months in which they would be needing funds, as well as the amounts that would be needed, and the months in which repayments could be made.

Because the treasurer is unsure as to the particular months in which bank financing will be needed, he has assembled the following information to assist in preparing a detailed cash budget:

Budgeted monthly absorption costing income statements for AprilJuly are:

	April	May	June	July
Sales	$ 560,000	$ 760,000	$ 460,000	$ 360,000
Cost of goods sold	392,000	532,000	322,000	252,000
Gross margin	168,000	228,000	138,000	108,000
Selling and administrative expenses:
Selling expense	76,000	96,000	57,000	36,000
Administrative expense*	43,000	57,600	35,600	34,000
Total selling and administrative expenses	119,000	153,600	92,600	70,000
Net operating income	$ 49,000	$ 74,400	$ 45,400	$ 38,000

*Includes $18,000 of depreciation each month.

Sales are 20% for cash and 80% on account.

Sales on account are collected over a three-month period with 10% collected in the month of sale; 80% collected in the first month following the month of sale; and the remaining 10% collected in the second month following the month of sale. Februarys sales totaled $175,000, and Marchs sales totaled $230,000.

Inventory purchases are paid for within 15 days. Therefore, 50% of a months inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $103,600.

Each months ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $78,400.

Dividends of $26,000 will be declared and paid in April.

Land costing $34,000 will be purchased for cash in May.

The cash balance at March 31 is $48,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

1. Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total.

2. Prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, and June.

b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total.

3. Prepare a cash budget for April, May, and June as well as in total for the quarter.