Question 3(7 marks)

Relevant data from Picta Company's operating budgets are presented below. The company's 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 Company's expected cashflow position in the first two quarters of the year. (2 marks)