The Coffee Table Company Ltd was established on 31st December 2005 to manufacture coffee tables for sale to the furniture retail trade. The owners invested K100 million as share capital. A long term loan of K80 million at 15% interest per annum, payable half-yearly, was received on 1st January 2006. Vehicles costing K25 million and fixtures and fittings costing K15 million were purchased for cash on 31st December 2005 and plant costing K75 million was delivered on 1st January 2006, to be paid for in two instalments in January and July, net of 10% retention which was to be released after three months. The plant is to be depreciated over eight years, the vehicles over four years and the fixtures over ten years. There is no scrap value on any of the fixed assets. A stock of raw material equal to one month's production was bought on credit terms and delivered on31st December 2005.

The cost specification of the product is as follows:

Coffee table pattern AJ75 (200 units in a batch)

Unit Cost Per batch

Material: K 000 K 000

Beech: 2 - metre run of 4cm square x K500 1.00

Pine board: 1 metre square x 2cm thick 1.80

Venee 0.80

Plastic fittings 0.70

4.30 830

Labour

Planning: 15 minutes xK5 000 per hour 1.25

Turning: 10 minutes x K6 000 per hour 1.00

Assembly: 15 minutes x K4 000 per hour 1.00

Inspection: 5 minutes x K6 000 per hour 0.05

3.75 750

Variable overhead 0.60 120

Fixed overhead recovery rate at K7 000 per hour

45 minutes production time 5.25 1050

Estimated cost 13.90 2780

Selling price K14,500

Production is planned at 1700 tables per month, but seasonal factors mean that only 1000tables will be made during each of June and July, but production will be stepped up to2400 tables during October and November to meet extra demand at Christmas. Having listened to an upbeat assessment of future economic conditions by the Minister of Finance, the directors are confident that they can sell all their production. There will be no stocks of work in progress or of finished goods since the tables are dispatched on the day of completion.

To underpin the sales effort, three months' credit.is given to customers, but bad debts equal to 1% of sales are expected. Two months' credit is taken from material suppliers and 1 month's credit from all other costs except rent paid quarterly in advance, rates paid for a half year in March and September, an annual insurance premium of K9 000 000 and

paid in July, and selling expenses of K3 000 000 paid in February, and K1 000 000 in November.

The fixed overhead expenses are budgeted to be:

K'000

Selling expenses 4000

Post and telephone 3000

Light and heat 2000

Power 7000

Rent 12000

Rates 8 000

Insurance 9 000 (from 1st July only)

Petty cash 4 619 (K385 000 per month x 11, K384 000x1)

Salaries 30 000 (K2 500 000 per month)

plus depreciation, interest and bad debts.

Required

Prepare:

(a) a balance sheet as at 31 December 2005;

(b) a monthly cash budget for 200