Saturn Distributors Inc. {SDI} is a wholesale supplier of various hardware products used in home renovations. Its business is cyclical, with higherthannormal demand in April and September. The business has been quite successful, and the company is looking to expand its market in western Canada. Senior management is conoerned about cash flow as it contemplates the expansion and has asked you to prepare a cash budget for the second quarter ofthe year [April June}. SDI has a wide range of customers. It deals with large retailers, such as Home Depot and Canadian re, but also with many local hardware stores. Most of its sales are on credit, but about 10% ofthe sales revenue is from cash sales. Due to eoonomic conditions, the collection pattern has been altered so that now only 20% of monthly credit sales are collected in the month of the sale, 50% are collected in the month after the sale and 2396 are collected in the second month following the sale. Any remaining amounts are deemed uncollectible. SDI builds its inventory in the first quarter of the year and starts shipping the inventory to its customers in April. Inventory purchases remain at a constant level through the second and third quarters and decline in the fourth quarter. SDI used to pay for inventory purchases in the month of the purchase, but as it is now taking longer to collect from its customers, it has changed its payment pattern so that it now pays for 25% of the purchases in the month of the purchase, and 75% in in the month following purchase. Actual and anticipated sales revenue and purchases of inventory are provided in exhibit one. Saturn Distributors Inc. Exhibit One Month Sales Revenue Units Purchased February {actual} $450,000 15,000 March {actual} $430,000 30,000 April [estimated] $750,000 May [estimated] $800,000 June [estimated] $765,000 July [estimated] $600,000 22,000 The average selling prioe is 530.00 per unit. The cost of goods sold is 52% of the selling price. Operating expenses for the months in the rst quarter of the year average $300,000 per month. Operating expenses in the second quarter increase by 15% over the rst quarter. Depreciation expense of $20,000 per month and bad debt expense of approximately $4,000 per month are included in operating expenses. 'lhe company will also be making a cash payment of $90,000 on April 301" to the Canada Revenue Agency. The estimated cash balance on March 31St is $142,000. The company has a line of credit of $500,000 that it draws on in months where there is a cash ow deciency. The company does not like to draw on the line ofcredit as the have to pay interest of 8% per annum in the month following its use. Th company will borrow enough from the line of credit to maintain a balance of $50,000 in their bank account