Hammond Ltd manufactures a single product. You have been asked to prepare the cash budget for each of the three months January to March 2016. You have been provided with the following information. 1. Expected sales volumes January 3,500 units February 4,000 units March 4,000 units April 6,000 units Items are normally produced in the month of sale, but there is a maximum capacity of 5,000 units per month. Where sales are forecast to exceed this the company will produce extra in the previous month. 2. Selling price is £110 per unit and customers pay in the month following the sale. At 31 December 2015 it is budgeted that customers will owe £330,000 from December sales. 3. Each unit uses 3 kgs of Material A which costs £6 per kg. It is bought in the month of production and paid for one month later. At 31 December 2015 it is budgeted that Hammond Ltd will owe suppliers £56,000 from December sales. 4. Each unit uses 2 metres of Material B. There is sufficient in stock to cover the three months production and it cost £3.50 per metre. It has no other use in the business and has no resale value. 5. Each unit requires 4 hours of unskilled labour and is paid based on the hours actually worked during the month. Labour is paid £8.00 per hour. 6. Thirty skilled production staff are employed on a monthly salary based on 175 hours at £14.00 per hour. When not required for production, skilled staff are deployed on other tasks such as supervision, inspection and training. 7. Sundry variable overheads cost £5 per unit and are paid in the month of production. 8. Rent and rates of £42,000 will be paid in March and electricity of £36,000 will be paid in January. Administration costs are £72,000 per month. 9. The company plans to buy a new machine for £500,000 to be paid for in full in February. 10. The cash balance at 31 December 2015 is expected to be £250,000. REQUIRED For each month January to March calculate production units, revenues, each element of variable costs and skilled labour (20%) and explain your calculations showing understanding of the principles (10%, about 200 words)



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