Best Producers Ltd Limited (HL) produces cooking pots which it sells locally and abroad. It has two production centers in Lusaka and Kitwe. The pots are produced in three different sizes with all of them being popular in both markets. HL intends to increase exports and plans to increase production and sales of the pots during the first half of next year 2019. The actual figures for November and December 2017 were:

Month Production (units) Sales (units)
November 50,000 50,000
December 75,000 75,000
The following are the plans for the next six months of next year:
(i) To produce 40,000 units in January with a growth of 25% for each subsequent month.
(ii) To sell 40,000 units in January with a growth of 20% for each subsequent month up to April. Sales forecast is 90,000 and 100,000 units for May and June respectively.
(ii) To sell the pots at an average price of K205 per unit, with an anticipated price increase to K215.50 per unit from 1 June 2019.
Additional Information:
(i) Receipts from sales:
- 40% for cash
- 60% on credit
- 5% discount is given to customer for payment within current month and on average 25% of customer will take up this option with the remainder paying the following month.
(ii) Raw material costs K30 per unit produced. Material purchases are paid one month after delivery and are held in inventory for one month before entering production.
(iii) Wages and other variable costs are K30 per unit produced. Wages, variable and fixed costs are paid in the month of production.
(iv) Other fixed costs are K12,000 per month rising to K17,000 from 1 May 2019 onwards
(v) A new machine costing K3.25 million is to be purchased in February to cope with the planned expansion of demand. K2.075 million will be paid on 1 February and the remainder retained until the machine is operational (expected 1 May 2019).
(vi) An advertising campaign is also to be launched, involving payments of K320,000 in each month of February and May.
(vii) Corporation tax of K385,000 is due on 30 June 2019. 27
(viii) The company is financed by share capital of 1 million shares of K1 per share, a debenture of K0.55 million paying semi-annual interest of 17.5% on 31 March and 31 June each year.

The debenture will be redeemed on 30 June 2019. The directors plan to pay a dividend of K0.1 per share in May 2019.
(ix) An overdraft of K0.575 million has been agreed with Best Producers Ltd.’s bankers. The current overdraft interest rate is 21% per annum on the prior month closing balance.
(x) Interest is received on cash balances at 8% per annum on the prior month closing balance. 

(xi) At the start of 1 January the firm’s bank account would be overdrawn by K378,000. 

Required: (a) Prepare a six months cash budget

Answer rating: 100% (QA)

Note In the absence of information it is assumed that c... View the full answer