Reference no: EM133001417

Problem - Amber Electronic Ltd is preparing its budget for the months of March and April 2020.

Presented below are the actual and budgeted sales prepared by the Financial Controller of Amber Electronics Ltd. The projected next year's collection to be 30% to be cash sales and 10% as credit sales. Cash collection for credit sales will be 00% in the mouth of sale and the balance to be collected in the following month.

Actual and Projected Sales for the months of January through to April 2020

January $100,000

February $130,000

March $220,000

April $190,000

To meet the above sales, purchases of inventory are made on ?rst day of the month and are paid at the end of the following month. Purchases of inventory amounts to 10% of the total sales and no extra inventory is required.

A ?xed operating cost amounting to $10,000 including a depreciation expense of $2,000, is incurred and paid at the end of every month.

In March, the Financial Controller is planning to buy an equipment costing $30,000. This equipment will be installed in April at a cost of $5,000. These costs are to be paid to two separate suppliers in the month of purchase and installation respectively. The opening cash balance is $10,000.

Required -

a) Prepare a monthly cash budget for the end of months of March and April only.

b) Explain to Amber Electronics' management what the cash budget prepared in part a) reveals about their business.