Question: The company would like to prepare a cash budget for the months of April, May, and June. The relevant details are given below (figures given are in $000):

                      Sales          Purchases            Operating Expenses

January            5,000            3,000                       1,600

February           8,000            6,000                       1,600

March             10,000            8,000                       1,600

April               12,000           10,000                       1,600

May               10,000             8,000                       1,600

June               15,000           12,000                       1,600

20% of sales every month is for cash. 80% of credit sales are collected in the month following sales and the rest during the second month after sales.

40% of purchase are for cash and credit purchases are paid in the following month.

Operating expenses are paid in the month in which it is incurred.

HMM will pay a dividend of $10,000,000 in the month of June.

Cash balance as of April 1 is $6,000,000

(a) Prepare a cash budget for the months April, May, and June.

(b) Discuss the use of cash budgets.