The following budget estimates have been prepared by Clifton Company:

Cash Receipts Cash payments

May $120,000 $150,000

June 110,300 150,000

The company likes to maintain a minimum cash balance of $40,000. Any excess cash is invested in a

money market account earning 9% compounded monthly. Interest is reinvested in the money market

account. Any cash deficiencies are covered by a withdrawal from the money market account. If

additional cash is needed, the company has a line of credit at 12% interest with the local bank. Interest is

paid monthly.

Assume a cash balance on May 1 of $40,000, a money market account balance of $0, and a credit line

balance of $0.

Required:

Prepare a cash budget for May and June (5 marks)

2. a. With the aid of diagrams, explain cost as variable, fixed, or mixed. (1 mark)

b. With detail examples, explain the methods of separating mixed cost into fixed and variable costs (1 mark)

c. What is break-even point, explain with a good example and a diagram (1 marks)

d. Explain the meaning of contribution margin with a good example (1 marks)

e. A vehicle spare parts dealer has the following information in her operating budget.

Sales were $1,020,000 with fixed costs for the period of $160,000. The total variable cost

was $581,400.

Required:

i, The contribution margin

ii Contribution rate

iii Break-even point in sales dollars