You are the recently appointed accountant at City Ltd is a new company, which will be incorporated on 1^st April 2020. Initially the company will manufacture and sell a single electronic product used in the production of drones. The following details relate to the companys first financial year:

Selling price 275 per unit.

Direct materials cost 75 per unit

Direct labour is 5 hours per unit for the first 2 months, reducing to 4 hours per unit thereafter.

Direct labour cost 12 per hour

Sales targets for the forthcoming financial year are as follows:

	Units
April 2020	1,200
May	1,400
June	1,500
July	1,900
August	2,000
September	2,000
October	2,100
November	2,200
December	2,000
January 2021	1,800
February	1,800
March	1,900

90% of sales will be on credit terms, with customers paying two months later. The remaining sales are paid for immediately. Closing inventory is planned to be 10% of the following months sales target. Sales for April 2021 are expected to be 1,700 units.

Direct materials will be purchased during the month they are required for production and paid for during the following month. An overhead absorption rate of 12 per direct labour hour has been calculated for the variable production overheads. Variable distribution costs of 8 per unit sold will also be incurred.

Total fixed production overheads of 115,000 and total fixed administration and distribution overheads of 73,000 for the year will be incurred on an even basis throughout the year. All overheads and the direct labour costs will be paid for in the month in which they are incurred.

All production machinery will be leased; the costs of leasing the machinery are included in the above figures. City Ltd will also buy equipment that will be used mainly in the I.T. department. They will purchase and pay for the equipment in June 2020. The equipment will cost 22,000 and will be depreciated by 25% per annum. Depreciation is not included in the overhead details given above.

City Ltd will issue 140,000 ordinary shares of 1 at par for cash on 1^st April 2020 and the company is unwilling to issue any further shares at this stage.

An explanation for the Directors as to the reasons why the forecast profit for the year is not the same as the cash movement for the year (with reference to underlying accounting assumptions and accounting concepts)