Reference no: EM133188002

Question - Nkutha Pty Ltd is a company that manufactures cleaning material. The company was founded by Mr Nkutha. Thecash on 31 January was a favourable balance of R90 000. The production budget for the next quarter revealed the following:

	January	February	March
Needed for sales	7 600	13 500	17 550
Closing inventory	200	700	1 700
Opening inventory	(1 800)	(200)	(700)
Production	6 000	14 000	18 550

The following additional budgeted information is available:

The selling price of R50 per unit will increase by 5% on 1 March.

December purchases amounted to R256 410 and sales to R950 500.

1.7 litres of material is used to produce one product. Mr Nkutha purchases the material from ABS Ltd at R350 for a 50-litre container.

Conversion cost is expected to be R20 per unit and is paid in the month it incurs. Fixed manufacturing overheads of R75 000 per quarter, including depreciation of R15 000 per quarter, accrues evenly throughout the quarter and is paid in the month it incurs.

The fixed administration cost of R25 000 is paid monthly.

All sales are on credit. Seventy per cent (%) is collected in the month after sales and the rest in the second month after the transaction took place. Two per cent (%) of the credit sales are expected to be bad debts and is written off after 60 days.

ABS Ltd grant 5% discount to Nkutha for a cash purchase. Sixty per cent (%) of the purchases are for cash and the rest in the month after purchase.

An overdraft facility is available to Nkutha.

Required - Prepare the cash budget for February and March. Show all your calculations and indicate the cash surplus/deficit, opening and closing balances for each month.