On December 1, 2014, the Iaia Wholesale Co. is attempting to project cash receipts and disbursements through January 31, 2015. On this latter date, a note will be payable in the amount of $ 107,000. This amount was borrowed in September to carry the company through the seasonal peak in November and December.

Selected general ledger balances on December 1 are:

Sales terms call for a 3% discount if payment is made within the first 10 days of the month after sale, with the balance due by the end of the month after sale. Experience has shown that 50% of the billings will be collected within the discount period, 30% by the end of the month after purchase, and 15% in the following month. The remaining 5% will be uncollectible. There are no cash sales.
The average selling price of the company’s products is $ 170 per unit. Actual and projected sales are:
October actual .................. $ 287,000
November actual ..................629,000
December estimated ................561,000
January estimated .................612,000
February estimated .................510,000
Total estimated for year ending June 30, 2015 ......$ 3,218,750
All purchases are payable within 15 days. Approximately 60% of the purchases in a month are paid that month and the rest the following month. The average unit purchase cost is $ 130. Target ending inventories are 570 units plus 20% of the next month’s unit sales.
Total budgeted marketing, distribution, and customer-service costs for the year are $ 670,000. Of this amount, $ 155,000 are considered fixed (and include depreciation of $ 43,400). The remainder varies with sales. Both fixed and variable marketing, distribution, and customer-service costs are paid as incurred.

Required
1. Prepare a cash budget for December 2014 and January 2015. Supply supporting schedules for collections of receivables; payments for merchandise; and marketing, distribution, and customer-service costs.
2. Why do Iaia’s managers prepare a cash budget in addition to the operating incomebudget?

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Cash Inventory Accounts payable S 30,000 111,800 $139,000