AB Ltd manufactures units for drills. All units are identical. The following working capital requirements are budgeted:

Notes:
1 Each month is assumed to consist of four working weeks.
2 Wages are paid one week in arrears.
3 70% of production overheads and 100% of administration overheads are paid for as they are incurred. The remaining expense is paid in the following month.
Required 1 Prepare a detailed cash budget for each of the months of October and November Year 6.
2 Reconcile the projected net profit of the months of October and November respectively with the surplus or deficit shown in the cash budget for each month.

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Inventory (stock) of raw materials Inventory (stock) of finished goods Trade debtors Cash balances Trade creditors for raw materials Creditors for other expenses Sales Manufactured cost of finished goods Raw materials Labour Production overheads Depreciation Budgeted profit and loss accounts are as follows: Adjustment for inventory of finished goods At end of Sept Year 6 Cost of goods sold Gross profit Administration overheads Discounts allowed Net profit 15,000 9,000 9,000 3,000 36,000 6,000 15,000 24,000 76,800 1,800 6,200 800 117,600 (14,500) (4,950) 98,150 70,000 42,000 28,000 7,000 21,000 At end of Oct Year 6 17,000 10,200 10,600 3,000 40,800 7,200 6,000 2,000 17,500 16,800 87,600 2,300 124,200 (16,500) (5,730) 101,970 80,000 48,000 32,000 8,000 24,000 At end of Nov Year 6 19,500 11,700 13,400 3,000 47,600 (2,000) 6,000 1,600 16,000 18,800 83,400 1,900 120,100 (15,500) (6,945) 97,655 76,000 45,600 30,400 7,600 22,800