Prepare a cash budget for each of the first three months and for that three-month period in total. (25 marks)

Quest Ltd, a new company, is being established to manufacture and sell an electronic tracking device: the Trackster. The owners are excited about the future profits that the business will generate. They have forecast that sales will grow to 2,600 Tracksters per month within five month and will be at that level for the remainder of the first year. The owners will invest a total of P250,000 in cash on the first day of operations (that is the first day of Month 1). They will also transfer non-current assets into the company. Extracts from the company's business plan are shown below. Sales The forecast sales for the first five months are: The selling price has been set at P140 per trackster. Sales Receipts Sales will be mainly through large retail outlets. The pattern for the receipt of payment is expected to be as follows: The balance represents anticipated bad debts. *A 4% discount will be given for immediate payment. Variable production cost The budgeted variable production cost is P90 per unit comprising: Direct materials: Payment for purchases will be made in the month following receipt. There will be no opening inventory of materials in Month 1. It will be company policy to hold inventory at the end of each month equal to 20% of the following month's production requirements. The direct materials cost includes the cost of an essential component that will be bought in from a specialist manufacturer. Direct wages: will be paid in the month in which the production occurs. Variable production overheads: 65% will be paid in the month in which production occurs and the remainder will be paid one month later. Fixed overhead costs: Fixed overheads are estimated at P840,000 per annum and are expected to be incurred in equal amounts each month. 60% of the fixed overhead costs will be paid in the month in which they are incurred and 15% in the following month. The balance represents depreciation of non-current assets