Woodrock Limited is setting up a company to manufacture and sell wooden desks and filing cabinets. The Finance Manager knows first few months of a business are crucial to its success and wants to draw up some initial plans for the first six months of trading. The company will be selling to large retail chains that have asked for 90-day credit terms. In turn, the Finance Officer and the Management Accountant have managed to negotiate 60-day credit terms from the company's materials suppliers. All other amounts will be paid for in the month they are incurred. The company will manufacture to order and all goods are manufactured in the month they are delivered. In the same way all materials are purchased in the month they are consumed.

Desk Cabinet Selling Price () 30 50 Materials () 10 12 Labour hours 30 minutes 40 minutes

Forecast Demand: Month 1 700 400 Month 2 500 300 Month 3 600 350 Month 4 800 400 Month 5 1,000 650 Month 6 1,100 800 The business is renting a small manufacturing unit and will be paying 12,000 for the first six months' rent, this rent is payable in advance. The company has decided to lease the necessary machinery to produce the wooden desks and filing cabinets at a cost of 2,500 per month. Marketing and advertising costs will total 8,000 and will be incurred in equal cash payments across the first four months of the start-up. The company will be paying a manager 3,000 per month and insurance of 4,000 for this period is payable at the start of trading. The company is paying for labour at a rate of 12 per hour if the standard production times are adhered to. Required: (a) Prepare the Cash Budget for Woodrock Limited the first six months oftrade.

(17 marks) (b) Comment on the cash position within the business, analysing what Woodrock Limited could do to improve cash flow. (4 marks) (c) Critically examine those issues of relevance in behavioural aspects of behavioural aspects of budgeting which may lead to problems in abusiness entity.