Preparation of cash budgets Y plc is currently preparing its budgets for the year ending 30 September 2001.

The sales and production budgets have been completed and an extract from them is shown below:

*Fixed overheads are absorbed on a unit basis assuming a normal production level of 14000000 units per year.
Direct materials are purchased in the month of usage and, where settlement discounts are available, Y plc’s policy is to pay suppliers so as to receive these discounts. It is expected that 60% of Y plc’s material costs will be received from suppliers who offer a 2% discount for payment in the month of purchase. Other material suppliers are to be paid in the month following purchase.
Direct labour costs are paid 75% in the month in which they are incurred and 25% in the following month. -
Variable overhead costs are paid in the month in which they are incurred.
Fixed overhead costs include £16000000 depreciation. Fixed overhead expenditure accrues at a constant rate throughout the year and is paid 40% in the month in which it is incurred and 60%
in the following month.
In addition to production costs, Y plc expects to incur administration overhead costs of £500000 per month and selling overhead costs of 2% of sales value. These costs are to be paid in the month in which they are incurred.
Y plc’s customers are expected to pay for items as follows:

Required:

(a) Prepare Y plc’s cash budget for the period April to July 2001, showing clearly the receipts, payments and resulting balances for each month separately. (20 marks)

(b) Use your answer to part

(a) above to explain clearly the following:
(i) feed-forward control;
(ii) feed-back control.

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Production Units (000s) Sales Units (000s) 000 January 900 1000 50 000 February 850 800 40 000 March 1000 900 45 000 April 1200 1100 55 000 May 1250 1300 65 000 June 1175 1200 60 000