M&J Pte Ltd (‘MJ”) is a distributor of cosmetics in Singapore. It is in the process of putting together a cash budget for the first quarter of 2021. The following information has been extracted from its accounting records.

All sales are on account. Fifty percent of customer accounts are collected in the month of sale. Twenty-five percent collected in the month following the sale. The company anticipates twenty-five of customer accounts will remain uncollectible due to the economic slowdown resulting from the pandemic.

Seventy percent of the merchandise purchases are paid for in the month of purchase. The remaining thirty percent is paid for in the month after acquisition.

The 31 December 2020 balance sheet shows the following selected balances: Cash $30,000; accounts receivable $44,000; and accounts payable, $15,000.

MJ maintains a $30,000 minimum cash balance at all times. The amount that needs to be borrowed each month will be summed up for the quarter (rounded to the nearest $1,000) to determine the amount to be borrowed from a government relief fund. Projections for the first quarter 2021:

	Jan	Feb	Mar
Sales revenue	$200,000	$180,000	$185,000
Merchandise purchases	$120,000	$115,000	$120,000
Cash operating cost	$30,000	$21,000	$35,000
Proceeds from sale of equipment		$10,000

The projections in the above table for first quarter 2021 were done in October 2020, before the pandemic. Conditions have since changed and some adjustments may be needed to reflect current conditions. Projected cash operating costs includes saleswomen salaries. MJ now plans to let go 1 saleswoman in Feb 2021. Her monthly salary is $2,500 (including CPF). The landlord has written to MJ to inform them of rent rebates that will start in March 2021. The rent rebate will reduce monthly rental (part of cash operating costs) by $1,000 from March 2021. In Jan 2021, MJ needs to spend $125,000 on renovations to change the fixtures in its shops. This renovation will be paid with $30,000 cash in Jan 2021 and $5,000 monthly instalments beginning Feb 2021 for 20 months. All other fixed costs remain as projected.

MJ pays fixed monthly salaries to its sales staff and rewards them a bonus at the end of the year (equal to two months’ salary) base on achieving budgeted sales target for every quarter. Sales targets are set yearly using participative budgeting process. The sales director has assigned responsibility for setting prices with minimum supervision from the board of directors, and approving credit for customers. MJ prides itself as a firm that provides excellent customer experience in the industry.

Required:

1. (a) Prepare a cash budget for MJ for January through March 2021, showing total cash collections, disbursements and cash to be borrowed each month. Provide the total amount (nearest $1,000) MJ expects to borrow when applying for government relief to help with cash flow.

1. (b) Explain the appropriateness of MJ’s organizational architecture (OA) in relations to motivating its sales team. Suggest (and explain) two (2) changes to the current OA. 

Answer rating: 100% (QA)

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