Ken and Samantha also want you to help construct Frames budget for the next period. In the three months of October, November and December, Frame makes the following forecasts for sales, costs, and other payments made in cash.

Unit Costs: Frame A Frame B Frame C Selling Price 300.00 400.00 500.00 respectively

Materials: Metal Costs 46.00 44.00 48.00

Materials: Other Costs 20.00 25.00 28.00

Direct Labour Costs 14.20 10.80 18.00

Sales Budget October November December Total

Frame A 180,000 240,000 291,000 711,000

Frame B 200,000 240,000 320,000 760,000

Frame C 500,000 600,000 800,000 1,900,000

Total 880,000 1,080,000 1,411,000 3,371,000

Direct Labour Budget October November December Total

Frame A 8,517 11,356 13,769 33,642

Frame B 5,400 6,480 8,640 20,520

Frame C 18,000 21,600 28,800 68,400

Total 31,917 39,436 51,209 122,562

Direct Materials Budget: Metal October November December Total

Frame A 27,600 36,800 44,620 109,020

Frame B 22,000 26,400 35,200 83,600

Frame C 48,000 57,600 76,800 182,400

Total 97,600 120,800 156,620 375,020

Timing of Cash Receipts from Sales Timing of Cash Payments to Suppliers of Metal In the Month of Sale/use 50% 20% In the Following Month 50% 30% After Two Months 50% Direct Materials Budget: Other Costs October November December Total

Frame A 12,000 16,000 19,400 47,400

Frame B 12,500 15,000 20,000 47,500

Frame C 25,000 33,600 44,800 103,400

Total 49,500 64,600 84,200 198,300

Notes:

1. Fixed costs in the income statement: 250,000 per month for October, November, and December.

2. Forecast cash payments for rent, machinery and tools, electricity, rates, insurance, and drawings have been 70,000 in October, 50,000 in November and 20,000 in December.

3. Cash introduced by the business in October has been: 120,000

Required:

(a) Prepare the Income Statement Budget for the three-month period.

(b) Prepare the Cash Flow Statement Forecast for the three-month period.

(c) Comment on the budgeted profitability and liquidity of Frame.