Question 4 Hannah, a friend of yours who recently inherited 80,000 from his grandfather, decides to commence business on 1 July, manufacturing a product for which he knows there is a ready market. Suitable premises have been found to rent and second- hand machinery costing 60,000 has been bought out of the 80,000. This machinery has an estimated life of five years from July and no scrap value. Other data 1. Production will begin on 1 July and 25% of the following month's sales will be manufactured in July. Each month thereafter the production will consist of 75% of the current month's sales and 25% of the following month's sales. 2. Estimated sales are July August September October November (Units) Nil () Nil 3,200 80,000 3,600 90,000 4,000 100,000 4,000 100,000 3. Variable production cost per unit Direct materials Direct wages Variable overhead () 7 625 4. Raw material stocks costing 10,000 have been purchased (out of the 80,000) to enable production to commence and it is intended to buy, each month, 50% of the materials required for the following month's production requirements. The other 50% will be purchased in the month of production. Payment will be made 30 days after purchase. 5. Direct workers have agreed to have their wages paid into bank accounts one month in arrears. 6. Variable production overhead: 60% is to be paid in the month following the month it was incurred and 40% is to be paid one month later. 7. Fixed overheads are 4,000 per month. One quarter of this is paid in the month incurred, one half in the following month, and