Toyota Company has budgeted sales revenues as follows:

Credit sales

January $260,000

February $420,000

March $510,000

April $320,000

Past experience indicates that 70% of the credit sales will be collected in the month of sale, 22 % will be collected in the first month following the sale and the remaining 8% will be collected in the following month. Purchases of inventory are all on credit and 30% are paid in the month of purchase and 70% in the month following purchase. Budgeted inventory purchases are:

February $300,000

March $250,000

April $105,000

Other cash disbursements budgeted: (a)selling and administrative expenses of $45,000 each month, (b) dividends of $85,000 will be paid in March, and (c) purchase of investments in April for $25,000 cash.

The company wishes to maintain a minimum cash balance of $60,000 at the end of each month. The company borrows money from the bank at 7% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on March 1 was $60,000. Assume that borrowed money in this case is for one month (ignore interest).

Instructions

(a) Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.

(b) Prepare a cash budget for the months of March and April.