You are the assistant to the CEO of Shatin Enterprises, a wholesale distributor of consumer goods. You are assisting the CEO in the planning and budgeting process. At March 31 Shatin Enterprises partial balance sheet reveals the followings:

Current assets as of March 31:
Cash	$50,000
Accounts receivable	$30,000
Inventory	$72,000
Accounts payable	$43,500

The actual and budgeted sales data are as follows:

March (actual)	$100,000
April	$120,000
May	$150,000
June	$180,000
July	$160,000

Other information regarding the company's operations follow:

• The gross margin is 25% of sales.
• Sales are 70% for cash and 30% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
• Each months ending inventory should equal to 80% of the following months budgeted cost of goods sold.
• One-half of a months inventory purchases is paid in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
• Selling and administrative expenses (excluding depreciation) are budgeted at $5,000 per month plus 5% of sales. Assume that these expenses are paid monthly. Depreciation is

$10,000 per month (including depreciation on new assets).

• Equipment costing $40,000 will be purchased for cash in April.
• Dividends of $10,000 will be declared and paid in May.
• Management would like to maintain a minimum cash balance of at least $40,000 at the end of each month. The company has an agreement with a bank that allows the company to borrow at the beginning of each month, up to a total loan balance of $150,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

1. The CEO asked you to explain the following to assist him designing a planning and budgeting model for the company:
   1. the concept of self-imposed budget and its major disadvantage
   2. the concept of zero-based budgeting and its advantage over incremental budgeting
   3. the concept of continuous budget and its major advantage

2. Prepare a schedule of expected cash collections for April, May and June.

3. Prepare a merchandise purchases budget and a schedule of expected cash disbursements for merchandise purchases for April, May and June.

d.Prepare a cash budget for April, May and June.