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Draw up a cash budget for A. Aiman showing the balance at the end of each month, fromthe following information for the six months ended 30 December 2023:a) Opening cash (including bank) balance on 1 July 2023 $3,600b) Production Units:2024 2025March April May June July Aug Sep Oct Nov Dec Jan720 810 900 960 1,050 1,110 1,140 1,020 930 780 750c) Raw materials used in production cost $15 per unit. Of this, 90 per cent in the month ofproduction and 10 per cent in the month after production.d) Direct labour costs of $24 per unit are payable in the month of production.e) Variable expenses are $6 per unit, payable 40 per cent in the same month as production and60 per cent in the month following production.f) Sales at $60 per unit:2024 2025Feb Mar Apr May June July Aug Sep Oct Nov780 600 960 870 1,200 900 1,050 1,200 1,170 1,200Debtors to pay their accounts three months after that in which sales are made.g) Fixed expenses of $1,200 per month payable each month.h) Machinery costing $6,000 to be paid for in September 2024.i) Will receive a legacy of $7,000 in November 2024.j) Drawings will be $900 per month.

Question

Draw up a cash budget for A. Aiman showing the balance at the end of each month, fromthe following information for the six months ended 30 December 2023:a) Opening cash (including bank) balance on 1 July 2023 3,600b)ProductionUnits:20242025MarchAprilMayJuneJulyAugSepOctNovDecJan7208109009601,0501,1101,1401,020930780750c)Rawmaterialsusedinproductioncost3,600b) Production Units:2024 2025March April May June July Aug Sep Oct Nov Dec Jan720 810 900 960 1,050 1,110 1,140 1,020 930 780 750c) Raw materials used in production cost 15 per unit. Of this, 90 per cent in the month ofproduction and 10 per cent in the month after production.d) Direct labour costs of 24perunitarepayableinthemonthofproduction.e)Variableexpensesare24 per unit are payable in the month of production.e) Variable expenses are 6 per unit, payable 40 per cent in the same month as production and60 per cent in the month following production.f) Sales at 60perunit:20242025FebMarAprMayJuneJulyAugSepOctNov7806009608701,2009001,0501,2001,1701,200Debtorstopaytheiraccountsthreemonthsafterthatinwhichsalesaremade.g)Fixedexpensesof60 per unit:2024 2025Feb Mar Apr May June July Aug Sep Oct Nov780 600 960 870 1,200 900 1,050 1,200 1,170 1,200Debtors to pay their accounts three months after that in which sales are made.g) Fixed expenses of 1,200 per month payable each month.h) Machinery costing 6,000tobepaidforinSeptember2024.i)Willreceivealegacyof6,000 to be paid for in September 2024.i) Will receive a legacy of 7,000 in November 2024.j) Drawings will be $900 per month.

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Solution

To draw up a cash budget for A. Aiman, we need to calculate the cash inflows and outflows for each month. Here's how to do it:

  1. Calculate the cost of raw materials used in production: Multiply the number of units produced each month by $15. Remember that 90% of this cost is paid in the month of production and 10% in the following month.

  2. Calculate the direct labor costs: Multiply the number of units produced each month by $24. This cost is payable in the month of production.

  3. Calculate the variable expenses: Multiply the number of units produced each month by $6. 40% of this cost is payable in the same month as production and 60% in the following month.

  4. Calculate the sales revenue: Multiply the number of units sold each month by $60. Remember that customers pay their accounts three months after the sales are made.

  5. Add the fixed expenses of $1,200 per month.

  6. Subtract the cost of machinery ($6,000) in September 2024.

  7. Add the legacy of $7,000 in November 2024.

  8. Subtract the drawings of $900 per month.

  9. Add or subtract the result to the opening cash balance of $3,600 to find the closing cash balance for each month.

Remember to carry forward the closing cash balance of one month to the next month as the opening cash balance. The closing cash balance for December 2023 will be the opening cash balance for January 2024.

This will give you the cash budget for A. Aiman for the six months ended 30 December 2023.

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