Question 3 (40 marks) 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 months 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) o Salaries $40,000 O Rent $25,000 o Other $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 O Based on the total information determine what the total cash inflows are for the three months (January - March) o Determine what the total cash outflows related to inventory/COGS would be O Determine what the total cash outflows related to fixed costs would be o Prepare a cash budget using the above information O Determine what amounts need to be borrowed and in what month