QUESTION 1 Spiderman Company is a merchandising company. The following information has been gathered to assist in preparing a cash budget for the quarter: a. Extract sales monthly budget for July-September are: July August September 250,000 Sales (RM) 300,000 450,000 b. 20% of sales are cash sales and the remaining 80% are on credit sales. c. Credit sales for July to September are collected over a three-month period with 10% collected in the month of sale, 70% collected in the month following sales and the remaining 20% collected in the second month following sale. d. May's sales totalled RM100,000 and June's sales totalled RM150,000. e. The required inventory purchases for July, August and September are RM231,000, RM287,000 and RM168,000 respectively. The pattern for payment to supplier are one-half of the month's inventory purchase is paid for in the month of purchase and the other half is paid for in the following month. f. The ending balance for account payable at 30* June for inventory purchases total RM63,000. g. Monthly expenses are as follows: July August September Selling expenses (RM) 38,000 55,500 26,500 Administrative expenses (RM) (include Depreciation - RM10,000 22,500 26,000 20,500 Commission each month) Rental 3,000 4,500 1,500 1,500 2,500 1,500 h. Dividend of RM21,500 will be declared and paid in July. i. Machinery costing RM8,000 will be purchased for cash in August. j. The cash balance at 30 June is RM26,000; the treasurer wants to maintain a minimum cash balance of RM20,000 at the end of each month. k. The company has an agreement with a local bank that allows the company to borrow up to RM100,000. The profit rate on borrowing on this loan is 2.5% per month. The company will repay the loan plus accumulated profit at the end of the quarter. Required: a. Prepare a schedule of expected cash collections for July, August and September. (6 Marks) b. Prepare a schedule of expected cash disbursements for merchandise purchase for July, August and September. (6 Marks) c. Prepare a cash budget for July, August and September as well as in total for the quarter. (11 Marks) i. ii. d. What would be the best decision by the management if the cash budget shows: surplus where total cash receipts more than total cash payments? deficit where total cash payments more than total cash receipts? (2 Marks)