Reference no: EM132486920

Question - Markus Corporation's sales of gizmos are 10% for cash and 90% on credit. Past collection history indicates that credit sales are collected as follows:

25% in the month of sale

70% in the month following sale

5% in the second month following sale

In January, sales were $39,000 and February sales were $43,000.Projected sales for March are 4,000 gizmos at $9 each. Projected sales for April are 4,700 gizmos at $11 each.

The cash balance at March 1 was $7,350.

Markus expects to purchase $22,000 of materials in February and $19,000 of materials in March. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase.

In addition, a 3% discount is allowed for payments made in the month of purchase.

All other fixed expenses are $6,570 per month and are paid in the month of purchase.

Required -

a) Prepare in good form a cash budget for March.

b) Why is the cash budget important?