Cash BudgetSpears Limited is engaged in manufacturing of special component (KWQ 12) be used in for calculators. As a step towards reducing uncertainty over the financeneeds of the new business, the finance manager has asked you to prepare a cashbudget for Spears Ltd for the nine (9) months period from 1 January 2014 till 30September 2014.You have collected some raw data from the concerned department heads and tabulated them as follows:a) The following are sales for the nine month period are as follows: Sales ForecastMonth Estimated Sales UnitsJanuary 250,000 February 255,000 March 264,000April 290,000 May 315,000 June 340,000July 365,000 August 270,000 September 257,000The estimated selling price per special component is $5.00.The collections for the above sales forecast are as follows:i. Collection from customers within the month of sale = 10% ( deemed to becash sales)ii. Collection from customers following the month of sale = 50%iii. Collection from customers following the second month of sales = 30%iv. 10% of the sales are estimated to become irrecoverable.b) Direct materials are acquired one month prior to production and are paid thefollowing month of purchase. One special component (KWQ 12) uses 2 units ofdirect materials. The company keeps stock of 25% of the next monthsestimated sales.Balance of direct materials as at 31 December 2013 amounts to 140,000 unitsof direct material at $0.25 per unit. There is no change in the cost directmaterial.2c) The Direct Labour cost is paid in the month when such costs are incurred.The number of hours estimated are as follows: January February March April May June July August September 120,000 125,000 130,000 128,000 142,000 154,000 165,000 178,000 190,000The company pays $1.50 per direct labour hour.d) Operating Expenses are estimated to be $332,000 per month and this is paidend of the month in which it is incurred. Included in the operating expenses aredepreciation charges worth $15,000.e) Income tax payments of $ 60,000 are due both in March and June 2014.f) Spears Ltd’s Cash on Hand on 31 December 2013 was $500,000To receive full credit on this assignment, please show all workings, includingformulas and calculations used to arrive at the financial values.Required:Prepare the following budgets:1) Sales [4.5 marks]2) Direct Materials Purchase Budget [9 marks]3) Direct Labour Budget [4.5 marks]4) Prepare a monthly cash budget for Spears Ltd for the 9-month period ofJanuary to 30 September 2014. [20 marks]

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