A small manufacturing company was established on 1st November, 2007. The working capital available on 1st December, 2007 was Sh. 300,000 in cash form.
Using the data given, you are required to prepare a cash budget for each of the months of December, January, February and March.
The variable production cost per unit is expected to be:
Shs.
Direct Materials 40
Direct Wages 30
Variable production Cost 15
Variable production cost 85
Fixed Overhead estimated at Sh480,000 per annum is expected to be incurred in equal amounts each month from 1st December. Production will commence in December and sales on 1st January. The estimated sales for the first four months are:
2008 Units Sales Value
January 6,200 651,000
February 6,800 707,200
March 5,400 594,000
April 6,000 630,000
The following consideration is to be taken into consideration:
1. Stocks, finished goods: 75% of @ month’s invoiced sales units to be produced in the month of sale and 25% of each month’s invoiced sales units to be produced in the previous month
2. Stocks, direct materials: 50% of direct materials required for @ month’s production to be purchased in the previous month. Direct materials to be paid for in the month following purchase
3. Direct wages to be paid 75% in the month used and 25% in the following month.
4. Variable production overhead: 40% to be paid in the month of usage and the balance in the following month
5. Fixed overhead: 30% to be paid in the month in which it is incurred and 40% in the following month, the balance represents depreciation of fixed assets.
6. Payments to be received from customers as follows:
Shs.
January 123,690
February 459,870
March 596,660