QUESTION THREE

1. FG Ltd is preparing its cash budget for January, February, and March 2020. Budgeted data are as follows:

	November	December	January	February	March
Sales (Units)	750	800	800	850	900
Production (Units)	800	800	850	900	950
Direct labour & variable overhead incurred	GH48,000	GH48,000	GH51,000	GH54,000	GH57,000
Fixed overhead incurred (excluding depreciation)	GH20,000	GH20,000	GH20,000	GH20,000	GH20,000

The selling price per unit is GH200. The purchase price per kg of raw material is GH25. Each unit of finished product requires 2kg of raw materials which are purchased on credit in the month before they are used in production. Suppliers of raw materials are paid one month after purchase.

All sales are on credit. 80% of customers pay one month after sale and the remainder pays two months after sale.

The direct labour cost, variable overheads and fixed overheads are paid in the month in which they are incurred.

Machinery costing GH100,000 will be delivered in February and paid for in March.

Depreciation including that on the new machinery are as follows:

Machinery and equipment	GH3,500 per month
Motor vehicle	GH800 per month

The opening cash balance at 1 January is estimated to be GH15,000.

Required:

Prepare a cash budget for each of the three months January, February and March. (12 marks)

State and explain FOUR (4) usefulness of cash budget. (4 marks)