Question 3 (7 marks)

Relevant data from Picta Companys operating budgets are presented below. The companys financial year ends on 30 June.

	Quarter 1	Quarter 2
Sales	$248,470	$251,539
Direct material purchases	120,295	128,832
Direct labor	76,553	74,289
Manufacturing overhead	26,000	24,400
Selling and administration expenses	33,500	33,500
Depreciation included in selling and administration expenses	2,000	2,500
Collection from customers	230,524	220,116
Cash payments for purchases	114,345	118,346

Additional data:

Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000.

The company has a 15% open line of credit for $70 000 with their bank.

Required:

a) Use this information to prepare a cash budget for the first two quarters of the year. (5 marks)

bi) Briefly comment on Picta Companys expected cashflow position in the first two quarters of the year. (2 marks)

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