The management accountant at Miller Merchandising & More, Odail Russell is in the process of

preparing the cash budget for the business for the fourth quarter of 2021. It is customary for the

business to borrow money during this quarter. Extracts from the sales and purchases budgets are

as follows:

Month Cash Sales Sales on Account Purchases

August $85,000 $640,000 $420,000

September $70,000 $550,000 $550,000

October $88,550 $600,000 $500,000

November $77,160 $800,000 $600,000

December $174,870 $500,000 $450,000

i) An analysis of the records shows that trade receivables are settled according to the

following credit pattern, in accordance with the credit terms 4/30, n90:

50% in the month of sale

30% in the first month following the sale

20% in the second month following the sale

ii) Expected purchases include monthly cash purchases of 5%. All other purchases are on

account. Accounts payable are settled as follows, in accordance with the credit terms -

2/30, n60:

60% in the month in which the inventory is purchased

40% in the following month

iii) Fixed operating expenses which accrue evenly throughout the year, are estimated to be

$1,680,000 per annum, (including depreciation on non-current assets of $420,000 per

annum) and is settled monthly.

iv) Wages and salaries are expected to be $2,280,000 per annum and will be paid monthly.

v) Other operating expenses are expected to be $108,000 per quarter and will be settled

monthly.

vi) In the month of November, an old motor vehicle, which cost $650,000, will be sold to an

employee at a gain of $30,000. Accumulated depreciation on the motor vehicle at that time

is expected to be $540,000. The employee will be allowed to pay a deposit equal to 60% of

the selling price in November and the balance settled in two equal amounts in December

2021 & January of 2022.

vii) Computer equipment, which is estimated to cost $320,000, will be acquired in November.

The manager has made arrangements with the dealer to make a cash deposit of 50% of the

amount upon signing of the agreement in November, with the balance to be settled in four

equal monthly instalments, starting in December 2021.

viii) The management of Miller Merchandising Company has negotiated with a tenant to rent

office space to her beginning November 1. The rental is $624,000 per annum. The first

month's rent along with one month's safety deposit is expected to be collected on

November 1. Thereafter, monthly rental income becomes due at the beginning of each

month.

ix) Taxation of $85,000 has to be settled in December.

x) A money market instrument purchased by the company with a face value of $300,000 will

mature on October 15, 2021. In order to meet the financial obligations of the business,

management has decided to liquidate the investment upon maturity. On that date quarterly

interest computed at a rate of 5% per annum is also expected to be collected.

xi) The cash balance at December 31, 2021 is expected to be an overdraft of $236,000.

Requirements:

(a) The business needs to have a sense of its future cashflows and therefore requires the

preparation of the following:

A schedule of budgeted cash collections for trade receivables (sales on account) for each of

the months October to December.

A schedule of expected cash disbursements for accounts payable (purchases on account)

for each of the months October to December.

A cash budget, with a total column, for the quarter ending December 31, 2021, showing the

expected cash receipts and payments for each month and the ending cash balance for each

of the three months, given that no financing activities took place.

(b) Another team member who is preparing the Budgeted Balance Sheet for the business for

the same quarter and has asked you to furnish him with the figures for the expected trade

receivables and payables to be included in the statement at December 31, 2021. Is that a

reasonable request? If yes, what should these amounts be?

(c) Upon receipt of the budget the team manager has now informed you that the management

of Miller Merchandising & More have indicated a desire to maintain a minimum cash

balance of $125,000 each month. Based on the budget prepared, will the business be

achieving this desired target? Given that the management does not wish to borrow any

funds from outside sources, suggest three (3) internal strategies that the business may

employ in order to improve the organization's monthly cash flow. Each strategy must be fully

explained.