Jafatech Ltd is a small, fast-growing technology business. It is preparing its cash budget for the quarter from January 2023 to March 2023, the following data has been obtained from the companys management accounting system.

Budgeted sales

Oct 2022 170,000

Nov 2022 200,000

Dec 2022 220,000

Jan 2023 250,000

Feb 2023 280,000

Mar 2023 320,000

In order to attract customers, Jafatech Ltd. has a history of offering generous credit terms. Customers tend to settle their debts according to the following pattern

20% in the month of sale

40% in the month following the month of sale

40% in the second month following the month of sale

Purchases of materials are 40% of each months sales. They are paid for in the month following the purchase.

Other data:

Wages are 20,000 per month and overheads are 50,000 per month (overheads include depreciation of 15,000 per month). These costs are paid in the month in which they are incurred. A major asset, costing 100,000, is due to be purchased in February 2023. In order to part-fund this asset purchase, a 60,000 loan (interest rate 1.25% per month) is to be taken out at the beginning of February. The opening cash balance on 01 January 2023 was 7,000.

Required:

(a) Prepare a detailed cash budget for each of the months from January 2023 to March 2023.

(b) Comment on the cash position of Jafatech Ltd for the first quarter of 2023 and briefly indicate the importance of preparing cash budgets.