Reference no: EM132582779

Oak Tree Villa operates a retail business. Purchases are sold at cost plus 331/3%. Or put another way, purchases are 75% of sales.

(a) Budgeted sales Labour cost Expenses incurred $ $ $ January 40,000 3,000 4,000 February 60,000 3,000 6,000 March 160,000 5,000 7,000 April 120,000 4,000 7,000

(b) It is management policy to have sufficient inventory in hand at the end of each month to meet sales demand in the next half month.

(c) Payables for materials and expenses are paid in the month after the purchases are made or the expenses incurred. Labour is paid in full by the end of each month.

(d) Expenses include a monthly depreciation charge of $2,000.

(e) (i) 75% of sales are for cash. (ii) 25% of sales are on one month's interest-free credit.

(f) The company will buy equipment for cash costing $18,000 in February and will pay a dividend of $20,000 in March. The opening cash balance at 1 February is $1,000.

Required:

Question 1: Prepare cash budget for February and March.