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DeLux Brothers (Pty) Ltd intends to expand its Palapye based operations by acquiring a new plant.

The Finance Manger has been asked by the owners of the company to prepare cash flow forecasts

for the business for the period December 2017 to May 2018. The marketing department has

prepared the following forecasts

Month Sales BWP

October 2017 Actual 180 000

November 180 000

December 360 000

January 2018 450 000

February 500 000

March 360 000

April 360 000

May 280 000

Collection estimates from the credit department are as follows:

O Collections within the month of sale (cash sales) 10%

O Collection in the month following the sale 75%

O Collection in the second month following the sale 15%

Total labour and raw materials costs are estimated for each month as follows:

Month BWP

December 2017 216 000

January 2018 270 000

February 300 000

March 250 000

April 216 000

May 168 000

General and administrative expenses will amount to approximately P27 000 per month, lease

payments will amount to P9 000 per month; depreciation will be P34 000 per month; miscellaneous

payments will be 2 700 per month; income tax payment of P300 000 will be due in March 2018 and

a deposit of P180 000 on a new vehicle will be required in December 2017. The bank charges

interest on overdraft of 7% (assume the interest is charged on closing balance for the previous

month). The cash balance at the end of November will be P40 000.

Required:

a) Prepare a cash budget for the period December 2017 to May 2018 (21 marks)

b) Briefly outline any five advantages of a zero based budgeting (ZBB) (5 marks

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