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Kronos Ltd is preparing a cash budget for May and June of 2021. Past records reveal that 15% of all credit sales are collected during the month of sale, 45% in the month following the sale, 30% in the second month following the sale and 10% in the third month following the sale. The company pays for 55% of purchases in the month after purchase, and the balance is paid in the month following that. Selling expenses amount to $2 400 per month plus 10% of monthly sales. Administrative expenses are estimated to be $9 800 per month, which includes $2 600 of depreciation expense. Finance expenses are $1600 per month. All selling and distribution, administrative, and finance and other expenses (except depreciation) are paid for when incurred. It is planned to purchase equipment during May 2019 at a cost of $7 500. A $5 800 loan payable will be repaid in full including interest charges during June 2019. The interest due at maturity date will be $750. The company's expected Cash at Bank balance at 1 May 2021 is $17 200. Estimated sales and purchases data are as follows. The company's expected Cash at Bank balance at 1 May 2021 is $17 200. Estimated sales and purchases data are as follows. Sales Purchases 2019 February March April May June $75 000 66 000 88 000 60 500 71 500 $38500 33 000 55 000 27 500 38500 Required: (a) Ignoring GST, prepare a Cash Budget for May and June 2021, by month and in total. (b) Discuss why preparing a Cash Budget is important for maintaining & monitoring cash adequacy in an organisation. Provide four (4) reasons in support of your answer. June Total for May and June 2021 May Beginning cash at bank balance Expected cash collections: 3rd preceding month (10%) 2nd preceding month (30%) 1st preceding month (45%) Current month (15%) Total expected cash flows Total cash available Expected cash payments: Purchases: 1st preceding month (55%) 2nd preceding month (45%) Selling expenses Administrative expenses Financial expenses Equipment purchase Loan payable and interest Total cash payments Ending cash at bank balance b) Insert your answer here

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