QUESTION 4 15 MARKS Rome Ltd is a company that manufactures industrial strength rope. You have been approached by Mr Grady, the chief executive, with the information below, to compile budgets for May and June 2021. Sixty percent (60%) of the sales are on a cash basis, whereas the remaining 40% of the sales are on credit. The credit sales have a consistent collection pattern, whereby 25% is collected in the month of sale, 30% the month following the sale and 45% in the second month following the sale. Rope is sold at R50 per meter. The sales (in meters of rope) for each of the months is as follows: Month Meters of rope March 2021 (actual) 1 010 April 2021 (actual) May 2021 (forecast) 900 June 2021 (forecast) 1 250 July 2021 (forecast) 1 350 800 Rope flax is the only raw material used in the production process. One meter of rope flax is used to produce one meter of rope. Raw materials purchased are paid for in the month in which they are purchased. Rome Ltd always keeps 10% of the next month's production requirements as the monthly raw material closing inventory. Each month's production requirements are produced in the month for which the production is required. Only enough will be produced for that month's demand. There is no opening or closing work-in-progress or finished goods stock. Rope flax is purchased at R8 per meter. The company will have an estimated opening balance of R20 000 of cash as at 1 May 2021. Direct labour is charged at R100 per hour and it is only used on demand. On average it takes 6 minutes to make one rope. Total fixed manufacturing overhead is R12 000 per month. This is made up as follows: Description Amount (R) Depreciation 3 000 Water and electricity 2 000 Insurance (paid annually in June) 1 500 Total fixed manufacturing overheads 12 000 REQUIRED Marks