The given information for N Morris is given:
a) Opening Cash (including bank) balance Rs 1,200
b) Production in units:
c) Raw materials used in production cost Rs 5 per unit. Of this 80 % is paid in the month of production and 20 % in the month after production.
d) Direct labor costs of Rs 8 per unit are payable in the month of production.
e) Variable expenses are Rs 2 per unit, payable 1/2 in similar month as production and 1/2 in the month given production.
f) Sales at Rs 20 per unit:
Debtors pay their accounts three months after the month in which sales are made.
g) Fixed expenses of Rs 400 per month payable each month.
h) Machinery costing Rs 2,000 to be paid for in October 2011.
i) Will receive a legacy Rs 2,500 in December 2011.
j) Drawings to be Rs 300 per month.
Required:
Question 1: A cash budget for N Morris for the six months period ending 31 December 2011.
Question 2: List and describe three ways in which the preparation of a cash budget could be of benefit to the management of N Morris.