Varsity Supplies & Things 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 of the entity and have been tasked to prepare

the cash budget for the business for the quarter ending March 31, 2023. The following data is

available:

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	$480,00		$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

(ii) An analysis of the records shows that trade receivables (accounts receivable) 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

(iii) Accounts payable are settled as follows, in accordance with the credit terms 2/30, n60:

85% in the month in which the inventory is purchased

15% in the following month

(iv) The management of Varsity Supplies & Things has negotiated with a tenant to sublet office

space to her beginning February 1. The rental is expected to be $576,000 per annum. The

first months rent along with one months safety deposit is expected to be collected on

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

month.

(v) Office Furniture & Fixtures, which is estimated to cost $350,000, will be purchased in

February. The manager has made arrangement with the suppliers to make a cash deposit of

40% upon signing of the agreement in February. The balance will be settled in five (5) equal

monthly instalments beginning March of 2023.

(vi) The management of Varsity Supplies & Things is in the process of upgrading its fleet of

motor vehicles. 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 this motor

van at that 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 two equal

amounts in March & April of 2023.

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

$2,088,000 per annum, which include depreciation on non-current assets of $504,000 per

annum and are expected to be settled monthly.

(viii) Other operating expenses which accrue evenly throughout the year are expected to be

$672,000 per annum and will be settled monthly.

(ix) A long-term bond purchased by Varsity Supplies & Things two (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% per annum is also expected to be collected

(x) As part of its investing activities, the management of Varsity Supplies & Things has just

concluded an expansion project relating to the businesss storage facilities. The project

required capital outlay of $1,600,000 and was funded by a loan from a family member, who

is 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.

(xi) Wages and salaries are expected to be $3,384,000 per annum and will be paid monthly.

(xii) The cash balance on March 31, 2023, is expected to be an overdraft of $248,000

Required:

(a) The business needs to have a sense of its future cash inflows and outflows for the quarter

and therefore requires the preparation of the following:

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 & Things have

indicated an industry requirement to maintain a minimum cash balance of $162,000 each

month. He has 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 financing.

Based on the budget prepared, will the business be achieving this desired target? Suggest

three (3) internal strategies that may be employed by management to improve the

organizations monthly cash flow and militate against or reduce any possible shortfall

reflected in the budget prepared. Each strategy must be fully explained.