Mr Bigboss is Cash Manager at Semente Pty Ltd, a producer of cement products. Mr Bigboss has been asked by the corporate treasurer to prepare a 3-month cash budget covering January, February and March 2015. Based on his preliminary investigations, Mr Bigboss has developed the following forecasts.

January	February	March
Sales Forecasts	80 000	90 000	100 000

The following additional information has been made available:

• The following trends have been observed about sales:
  • 40% of sales are collected in the month of the sale and are entitled to a 2% discount
  • 40% of sales are collected in the month following the sale and are not entitled to any discount
  • 20% of sales are collected on the second month after the sale.
• Purchases are estimated at 35% of monthly gross sales.
• 40% of all purchases are paid for in cash on delivery. The remainder of the purchases are on credit basis, and are paid for in full in the month immediately following purchase.
• Monthly Operating expenses constitute of:
  • Rental at P8 000 per month
  • Salaries and wages are paid at a commission of 15% of gross monthly sales
  • Overhead expenses are at 5% of monthly gross sales
  • All monthly operating expenses are due in the month in which they are incurred.
• December 2010 sales were P70 000
• Although its target monthly cash balance is P5 000, Semente held P3 000 in cash at the end of December 2014.
• A cash dividend of P18 100 was declared and paid in January 2015

Required:

• Prepare a cash budget for the months of January to March 2015 (12 marks)
• Comment on the performance of the company in each of the three months (4 marks)

Having prepared and analysed the cash budget, what recommendations would you have for the company management? (4 marks)