Oscar & Elmo Ltd (OEL). is forecasting their cashflow needs for the next quarter and want to develop a cash budget to determine what months they will need to borrow. They have determined the following information:

Sales are collected at a rate of 45% in cash and 55% on credit. All credit sales are collected in the next month. Sales by month are:

December: $175,000 January: $95,000 February: $125,000 March: $100,000

April: $65,000

• Gross Margin is at 30% of sales.
• At the end of each month, inventory on hand is equal to 50% of the following month's sales needs, at cost.
• 25% of a month's inventory purchases is paid for in the month of purchase; the other 75% is paid for in the following month (assume that opening accounts payable is prior month's inventory)
• Assume beginning inventory is $50,000, opening cash is $30,000, opening accounts payable related to inventory is $37,500
• Monthly fixed costs are as follows (all paid in cash)

oSalaries $40,000oRent $25,000

oOther $15,000

Assume that the company can only borrow in $5,000 increments and at the beginning of the month, therefore if OEL projects that they will not have enough cash for the month they must borrow.

Required

oBased on the total information determine what the total cash inflows are for the three months (January - March)

oDetermine what the total cash outflows related to inventory/COGS would beoDetermine what the total cash outflows related to fixed costs would be

oDetermine the cash budget using the above information

oDetermine what amounts need to be borrowed and in what month