Mpandashalo Ltd has produced the following information from which a cash budget for the first six months of the year is required. The company makes a single product which sells for K50,000 and the variable cost of each unit is as follows: Material K26,000 Labour (wages) K 8,000 Variable overhead K 2,000 Fixed overheads (excluding depreciation) are budgeted at K5,500,000 per month payable on the 23rd of each month. Notes (a) Sales units for the last two months of the year November December 1,000 1,200 (b) Budgeted sales units for next year January February March April May June 1,400 1,600 1,800 2,000 2,200 2,600 (c) Production quantities for the last two months of the year November 1,200 December 1,400 (d) Budgeted production units for the next year January 1,600 February March 2,000 2,400 April May June 2,600 2,400 2,200 (e) Wages are paid in the month when outputs is produced. (f) Variable overhead is paid 50% in the month when the cost is incurred and 50% the following month. 1 (g) Suppliers of materials are paid two months after the material is used in production. (h) Customers are expected to pay at the end of the second month following sale. (i) A new machine is scheduled for January costing K34,000,000; this is to be paid for in February. (j) An old machine is to be sold for cash in January for K1,200,000. (k) The company expects to have a cash balance of K35,500,000 on 1 January. Required (a) Prepare a month by month cash budget for the first six months of next year. [15 marks] (b) Comment on the action management might take in the light of the cash budget you have prepared. (c) Explain how depreciation would affect the following: (i) A cash budget (ii) The calculation of profit in a business [3 marks] [1 mark] [1 mark] TOTAL: 20 MARKS