Question 3                                                                                                     Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June.                  Quarter 1 Quarter 2 Sales $248,470 $251,539 Direct material purchases 120,295 128,832 Direct labor 76,553 74,289 Manufacturing overhead 26,000 24,400 Selling and administration expenses 33,500 33,500 Depreciation included in selling and administration expenses   2,000   2,500       Collection from customers 230,524 220,116 Cash payments for purchases 114,345 118,346   Additional data: Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000.   The company has a 15% open line of credit for $70 000 with their bank.   Required:   a) Use this information to prepare a cash budget for the first two quarters of the year.  bi) Briefly comment on Picta Company’s expected cashflow position in the first two quarters of the year.                SHOW YOUR WORKING

Dec. Year Jan. Year 2 Feb. Year 2 Mar. Year 2 1 (Actual) $70,000 $20,000 (Budgeted) $165,000 $ 40,000 (Budgeted) $ 120,000 $ 22,000 (Budgeted) Credit sales $150,000 Cash sales $ 35,000 Based on the company's collection history, 42% of credit sales are collected in month of sale, and the remainder is collected in the following month. Cash collections in January from December credit sales would be: Multiple Choice $40,600. $45,500. $62,000. $60,200.

n 2 Feb. NI $1,876 -.... quarter of 2018: HOLLY COMPANY Budgeted Income Statement For the Quarter Ended March 31, 2018 Total March February Net Sales Revenue January $ 11,520 $ 29,120 (20% increase per month) $ 8,000 $ 9,600 Cost of Goods Sold (40% of sales) 11,648 3,840 4,608 3,200 Gross Profit 6,912 17,472 4,800 5,760 S&A Expenses 2,960 3,152 8,912 ($2,000 + 10% of sales) 2,800 Operating Income 3,760 8,560 2,000 2,800 Income Tax Expense (30% of operating income) 2,568 600 840 1,128 Net Income $ 1,400 $ 1,960 $ 2,632 $ 5,992 Holly Company is considering two options. Option 1 is to increase advertising by $700 per month. Option 2 is to use better-quality materials in the manufacturing process. The better materials will increase the cost of goods sold to 45% but will provide a better product at the same sales price. The marketing manager projects either option will result in sales increases of 30% per month rather than 20%. Requirements 1. Prepare budgeted income statements for both…

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