Herbert Limited make a single product, whose unit budget details are as follows:

\begin{tabular}{lll}

Selling price & $£$ & $£$ \\

Less Costs & & 30 \\

Direct material & 9 \\

Direct labour & 4 \\

Direct production expenses & 6 \\

Variable selling expenses & $\underline{4}$

\end{tabular}

(23)

Contribution

\section*{Additional information:}

1 Unit sales are expected to be:

\begin{tabular}{ccccc}

June & July & August & September & October \\

1,000 & 800 & 400 & 600 & 900

\end{tabular}

2 Credit sales will account for $60 \%$ of total sales. Debtors are expected to pay in the month following sale for which there will be a cash discount of $2 \%$.

3 Inventory levels will be arranged so that the production in one month will meet the next month's sales demand.

4 The purchases of direct materials in one month will just meet the next month's production requirements.

5 Suppliers of direct materials will be paid in the month following purchase.

6 Labour costs will be paid in the month in which they are incurred. All other expenses will be paid in the month following that in which they are incurred.

7 Fixed expenses are $£ 2,000$ per month and include $£ 180$ for depreciation.

8 The bank balance at 1 July 2012 is $£ 3,900$ favourable to the business.

\section*{Required:}

(a) A cash budget for Herbert Limited for the three month period ending on 30 September 2012 showing the balance of cash at the end of each month.

(b) List and explain three ways in which the preparation of a cash flow budget could be of advantage to the management of Herbert Limited.