Property Masters Ltd is in a process of preparing its master budget for the 6 months to December 2015. The statement of financial position for the year to 30 June 2015 is estimated to be as follows: Shs 000 Shs 000 Non-current assets 140,000 Less depreciation (14,000) 126,000 Current assets: Inventory 25,000 Trade receivables 24,600 Bank 3,000 52,600 Current liabilities: Trade payables 25,000 Other payables 9,000 (34,000) Net-current assets 18,600 Total assets less liabilities Capital & reserves: Share capital 144,600 100,000 Retained earnings 44,600 144,600 The budget committee have derived the following forecasts for the 6 months to 31 December 2015: Sales (units) Purchases Shs 000 Wages & salaries Shs 000 Overheads excluding depreciation Shs 000 Purchase of fixed assets Shs 000 Issue of shares Shs 000 Dividends Shs 000 May 4,000 12,000 8,000 7,000 June 4,200 13,000 8,000 7,000 July 4,500 14,000 8,000 7,000 Aug 4,600 18,000 10,000 7,000 Sept 4,800 16,000 10,000 7,000 20,000 Oct 5,000 14,000 10,000 8,000 10,000 Nov 3,800 12,000 12,000 8,000 30,000 Dec 3,800 12,000 12,000 8,000 Additional information: (a) Selling price in May 2015 was Shs 6,000 per unit and this is estimated to increase to Shs 8,000 in October. 50% of sales are for cash and 50% on credit paid for 2 months later. (b) Purchases are to be paid for 2 months after purchase. (c) 75% of the wages and salaries are to be paid for in the month they will be incurred and 25% in the following month. (d) Overheads are to be paid one month after they have been incurred. (e) Fixed assets are to be paid for in three equal installments following the purchase. (f) Dividends are to be paid 3 months after they have been declared and receipts from the issue of shares are to be received in the same month as budgeted. (g) Fixed assets are depreciated at 10 % per annum on a straight-line basis on those assets owned at 31 December 2015. (h) Closing inventory at the beginning of the period under review was equal to the previous 2 months purchases. At 31 December 2015, it is estimated to equal to 3 months purchases. Required: a) Prepare a cash budget for the 6 months to 31 December 2015. 20 MKS b) Which edxpenses do you think do not favoiur production 10MKS c) Advise the above management on both sales and production policies 10 MKS