Problem 2 - Master Budgeting (30 marks) Management of Dunder, Inc. is planning its cash needs for the second quarter. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for April-July are: April May June July Sales $ 350,000 $ 410,000 $ 920,000 $ 620,000 Cost of goods sold 245,000 287,000 644,000 372,000 Gross margin 105,000 123,000 276,000 248,000 Selling and administrative expenses: Selling expense 45,500 119,600 80,600 Administrative expense 44,500 48,700 66,000 63,400 Total selling and administrative 90,000 102,000 185,600 144,000 expenses Net operating income $ 15,000 $ 21,000 $ 90,400 $ 104,000 53,300 b. Administrative expenses include $20,000 of depreciation each month. c. Sales are 30% for cash and 70% on account. d. Sales on account are collected over a three-month period with 20% collected in the month of sale; 60% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February's sales totaled $330,000, and March's sales totaled $410,000. e. 40% of a month's inventory purchases are paid for in the month of purchase. The remaining 60% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $157,000. f. Each month's ending inventory must equal 25% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $112,000. g. Dividends of $40,000 will be declared and paid in April. h. Land costing $38,000 will be purchased for cash in May. i. The cash balance at March 31 is $82,000; the company must maintain a cash balance of at least $100,000 at the end of each month. j. The company has an agreement with a local bank that allows the company to borrow at the beginning of each month, up to a total loan balance $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. (6 marks) 2. Prepare the following for merchandise inventory: a. A merchandise purchases budget for April, May, and June. (5 marks) b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. (5 marks) 3. Prepare a cash budget for April, May, and June as well as in total for the quarter. (14 marks)