Varsity Supplies is a family owned store. The business is now approaching the end of the year and is desirous of identifying its expected cash inflows and outflows for the first quarter of the new year. You are the management accountant and have tasked to prepare the cash budget for the business for the quarter ending March 31 2023.

1. Extracts from the sales and purchases budgets are as follows:

Month 2022-2023	Cash Sales	Sales on Account	Cash Purchases	Purchases on account
November 2022	142,100	480,000		345,000
December 2022	165,500	600,000	25,800	380,000
January 2023	171,475	650,000	44,625	400,000
February 2023	144,940	700,000	30,400	480,000
March 2023	236,720	800,000	55,100	540,000

2. Analysis of records shows that trade receivables (accounts receivables) are settled according to the following credit pattern in accordance with the credit terms 4/30, n90:

55% in the month of sale

35% in the first month following the sale

8% in the second month following the sale

The remaining 2% is expected to be uncollectible

3. Accounts payable are settled as follows in accordance with credit terms 2/30, n60:

85% in the month in which the inventory is purchased

15% in the following month

4. The management of Varsity Supplies has negotiated with a tenant to sublet office space beginning February 1. The rental is expected to be $576,000 per annum. The first month rent along with one month safety deposit is expected to be collected on February 1. Thereafter, monthly rental income becomes due at the beginning of each month

5. Office Furniture & Fixtures which is estimated to cost $350,000 will be purchased in February. The manager has made arrangement with suppliers to make cash deposit of 40% upon signing of agreement in February. The balance will be settled in 5 equal monthly installments beginning March 2023.

6. The management of Varsity Supplies is in the process of upgrading its fleet of motor vehicle. During February, the business expects to sell an old delivery motor van that cost $720,000 at a loss of $45,000 to an employee. Accumulated depreciation on the motor van at the time is expected to be $375,000. The employee will be allowed to pay a deposit equal to 50% of the selling price in February; the balance will be settled in 2 equal amounts in March and April of 2023.

7. Fixed operating expenses accrue evenly throughout the year are estimated to be $2,088,000 per annum which include depreciation on non current asset of $504,000 per annum and expected to be settled monthly

8. Other operating expense which accrue evenly throughout the year, are expected to be $672,000 per annum and will be settled monthly

9. A long term bond purchased by Varsity Supplies 2 years ago, with a face value of $450,000 will mature on January 15, 2023. To meet the financial obligations of the business management has decided to liquidate the investment upon maturity. On that date, semi-annual interest computed at a rate of 8 1/3% per annum is also expected to be collected.

10. The management of Varsity Supplies has just concluded an expansion project relating to business storage facilities. The project require capital outlay of $1,600,000 and was funded by a loan from a family member who will become a silent partner in the business. $320,000 of the principal along with interest of $35,000 will become due and payable on January 25, 2023.

11. Wages & Salaries are expected to be $3,384,000 per annum and will be paid monthly

12. The cash balance on March 31, 2023 is expected to be an overdraft of $248,000

Required

a. The business needs to know the cash inflows and outflows for the quarter and therefore requires:

A schedule of budgeted cash collections for trade receivables for each of the months January to March

A schedule of expected cash disbursements for accounts payable for each of the months January to March

A cash budget with a total column for the quarter ending March 31, 2023 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 ending March 31,2023 and has asked you to furnish him with the figures for the expected trade receivables and payables to be included in the statement. Is that a reasonable request? If yes, what should these amounts be?

c. Upon receipt of the budget, the team manager Damion Brownie has now informed you that in keeping with industry players, the management of Varsity Supplies have indicated an industry requirement to maintain a minimum cash balance of $162,000 each month. He also noted that management is very keen on keeping the gearing ratio of the business as low as possible and would therefore prefer to cushion any gaps internally using equity ratio

Based on the budget prepared, will the business be achieving this desired target? Suggest 3 internal strategies that may be employed by management to improve the organization`s monthly cash flow and militate against or reduce any possible shortfall reflected in the budget prepared. Each strategy must be fully explained.