QUESTION 2: Cash Budgets Total marks for this question: 25 marks [Suggested time: 45 minutes] Elvstrom Company prepares monthly cash budgets. Provided below is a set of relevant data extracted from existing reports, and the sub-budgets for the two months of September and October 2011 Credit sales Direct materials purchases Direct labour Manufacturing overhead Marketing and administrative expenses Proceeds from sale of old equipment Cash payment for new IT equipment September $314 000 162 000 51 400 21 600 39 000 October $412 000 216 000 55 200 23 400 39 000 8 200 16 500 T- All sales are on credit. Collections from debtors normally have the following pattern: 60 percent in the month of sale, 30 percent in the month following the sale, and 10 percent in the second month following the sale. Fortunately, Elstrom does not have much trouble with bad debts. Sales in June, July and August were $295 000, $266 000 and $302 000 respectively. Direct material purchases are paid in the month following the purchase. Purchases in August were $182 000. Manufacturing overhead includes $12 500 for depreciation expense, while marketing and administration expenses include an amount of $5 600 for depreciation expenses. Elvstrom expects to be able to repay the principal on a $50 000 loan in October REQUIRED 1. Prepare a schedule of receipts from debtors for the two months ending 31 October 2011 (7 marks) 2. Prepare a cash budget for September and October 2011. The cash balance at 31 August was $12 600. (15.5 marks) Page 9 of 12 3. As part of its long term plans, Elvstrom was hoping to commence a product reinvention program for one of its core products. The project would require an initial cash commitment of $30 000. Management was hoping to fund this from the cash flows of the business. Does this seem feasible? Briefly discuss (2.5 marks)