A Company is ready to begin its third quarter, in which peak sales occur. The company has required a Tk. 40,000, 90-days loan from its bank to help meet cash requirements during the quarter. Since the company has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled:

(a) On July 1, the beginning of the third quarter, the company will have a cash balance of Tk. 44,500.

(b) Actual sales for the last two months and budgeted sales for the third quarter as follows: May (actual) 2,50,000 June (actual) 3,00,000 July (budgeted) 4,00,000 August (budgeted) 6,00,000 September (budgeted) 3,20,000 Past experience shows that 25% of a month’s sales are collected in the month of sales, 70% in the month following sales, and 3% in the second month following sales. The remainder is uncorrectable.

(c) Budgeted merchandise purchases and budgeted expenses for the third quarter are given below:

                                                        July                         August                    September

Merchandise purchase             2,40,000                 3,50,000                   1,75,000

Salaries                                        45,000                    50,000                       40,000

Advertising                                  1,30,000                 1,45,000                    80,000

Rent payment                             9,000                       9,000                         9,000

Depreciation                               10,000                    10,000                       10,000

Merchandise purchases are paid in full during the month following purchase. Accounts payable for the merchandises on June 30, which will be paid during July, total Tk. 1,80,000.

(d) Equipment costing Tk. 20,000 will be purchased for 50% cash and 50% credit during July.

(e) Office furniture costing Tk. 30,000 will be purchased for credit during September.

(f) In preparing the cash budget, assume that Tk. 40,000 loan will be made in July and repaid in September. Interest on the loan will total Tk. 1,200.

Required:

(a) Prepare a schedule of expected cash collections for July, August and September and for the quarter in total.

(b) Prepare a cash budget by month and in total, for the third quarter.

(c) If the company needs a minimum cash balance of Tk. 20,000 to start each month, can the loan be repaid as planned? Explain.