Preparation of cash budgets A redundant manager who received compensation of £80000 decides to commence business on 4 January, manufacturing a product for which he knows there is a ready market. He intends to employ some of his former workers who were also made redundant but they will not all commence on 4 January. Suitable premises have been found to rent and second-hand machinery costing £60000 has been bought out of the

£80000. This machinery has an estimated life of five years from January and no residual value.

Other data & Production will begin on 4 January and 25%
of the following month’s sales will be manufactured in January. Each month thereafter the production will consist of 75% of the current month’s sales and 25% of the following month’s sales.

received in the following month, 20% in the third month and 8% in the fourth month. The balance of 2% represents anticipated bad debts.
You are required to:

(a) (i) prepare a cash budget for each of the first four months, assuming that overdraft facilities will be available; (/7 marks)
(ii) state the amount receivable from customers in May; (4 marks)

(b) describe briefly the benefits to cash budgeting from the use of a particular type of software package.

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2. Estimated sales are (units) () January Nil Nil February 3200 80 000 March 3600 90000 April 4000 100 000 May 4000 100 000 3. Variable production cost per unit () Direct materials 7 Direct wages 6 Variable overhead 2 15