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EBU 1023 Assignment (Group)

Preparing Budgets Question

A. MANUFACTURING Business Entity

Jay Sdn Bhd is a manufacturer of two products Ace and Bee. Information relating to the
following year 2017 is as follows:

1. Inventory of finished goods (Product Ace and Product Bee):

Product Ace Product Bee
Estimated sales 2,500 units 500 units
Selling price RM82 RM100
Opening inventory of finished goods 50 units 35 units
Closing inventory of finished goods 550 units 25 units

2. Materials
Material X Material Y
Material content per unit of finished goods
Product Ace 6 kg 5 kg
Product Bee 3 kg 4 kg
Opening inventory 1,250 kg 1,100 kg
Closing inventory 1,500 kg 250 kg
Price per kg RM0.60 RM1.30

3. Labour
Product Ace Product Bee
Labour required for 1 unit of finished goods 6 hours 10 hours
Labour rate per hour RM2 RM2

4. Budgeted overheads
Product Ace Product Bee
RM RM
Budgeted variable overhead rates (per direct
labour hour):
Indirect materials 1.20 0.80
Indirect labour 1.00 1.00
Power (variable portion) 0.60 0.40
Maintenance (variable portion) 0.20 0.30

Budgeted fixed overheads:

Depreciation 10,000 7,000
Supervision 12,000 5,000
Power (fixed portion) 4,000 1,600
Maintenance (fixed portion) 4,600 610

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5) Estimated non-manufacturing overheads:

RM
Salaries Sales department 7,400
Administration 2,800
Stationery - Administration 400
Sales commission 6,000
Car expenses - Sales 2,200
Advertising 8,000
Miscellaneous - Administration 800

6) Inventories of raw materials and finished goods at 1 Jan 20x3 amounted to RM4,525.
RM
Opening (at 1 January 2017) 4,525
Closing (at 31 December 2017) 15,345

You are required to prepare the followings:

a) Sales budget
b) Production budget
c) Material usage budget
d) Material purchase budget
e) Direct labour budget
f) Factory overhead budget
g) Selling and administration expenses budget
h) Budgeted Statement of Profit or Loss for the year ended 31 December 2017.

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ANSWER

a) Sales Budget
- This budget gives estimates of the number of units to be sold.

Sales Budget for the year ending 31 December 2017

Product Units sold Selling price Total revenue
(RM) (RM)
Ace
Bee

b) Production Budget
This budget gives estimates of the number of units to be produced.

Annual Production Budget

Ace Bee
Units to be sold
Add: Required closing inventory
Total units required for the year
Less: Opening inventory
Units to be produced

c) Materials Usage Budget

- This budget gives estimates of materials required to meet the production budget.

Product Material X Material Y

kg kg
Ace

Bee

Materials to be used (kg)

TOTAL
RM RM RM
Cost per kg
Cost of materials used

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d) Materials Purchase Budget

- This budget shows the expected costs of the planned purchases of materials required to
meet the production requirements.

Direct Material Purchase Budget

Material X Material Y TOTAL
kg kg RM
Quantity required for production
Add: Planned Closing stock (kg)

Less: Planned Opening stock (kg)

Total materials to be purchased (kg)

Planned purchase price per kg (RM)

Total purchases

e) Direct labour Budget

- This budget provides estimates of the departments labour hours required to meet the
planned production.
Annual Direct labour Budget
Production Labour hours Total Rate per Labour
Product units per unit hours hour Cost
RM RM
Ace
Bee

TOTAL

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f) Factory overhead budget

- This budget provides estimates of the factorys indirect costs or overheads (indirect
materials, indirect labour and indirect expenses) required to meet the planned production.
- Need to separate costs into variable (controllable) costs and fixed (non-controllable) costs.
This helps managers see which costs will change as production volume changes.

Budgeted direct labour hours:

Product Ace = 18,000 hours
Product Bee = 4,900 hours

Variable OH
rate per
direct labour Overheads TOTAL
hour
Ace Bee Ace Bee
RM RM RM RM RM
Budgeted variable overhead
rates (per direct labour hour):
Indirect materials
Indirect labour
Power (variable portion)
Maintenance (variable portion)

Budgeted fixed overheads:

Depreciation
Supervision
Power (fixed portion)
Maintenance (fixed portion)

Total overhead
Budgeted factory overhead rate

* Total overhead direct labour hours

g) Selling and administration budget

(i) Selling and distribution budget:

RM
Salaries
Sales commission
Car expenses - Sales
Advertising

(ii) Administration budget:

RM
Salaries
Stationery
Miscellaneous

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h) Budgeted Statement of Profit or Loss (Income Statement)

Jay Sdn Bhd

Manufacturing Account for the year ended 31 December 2017

RM RM
Cost of raw materials used
Direct labour
Direct expense (eg hire of a special machine)
Prime Cost

Production overheads
Variable
Fixed
Production cost transferred to income statement

Jay Sdn Bhd

Statement of Profit or Loss for the year ended 31 December 2017

RM RM
SALES REVENUE
Less: COST OF GOODS SOLD
Opening inventories (W2)
Add: Production cost
Cost of goods available for sale
Less: Closing inventories (W3)

Gross Profit / (Loss)

Add: Other income
Less: Expenses
Selling & distribution
Administration
NET PROFIT

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B. NON-Manufacturing Business Entity

Mulu Enterprise is a retailer of a speedometer, MT7. The financial year of Mulu ends on 31
December of each year. Given below is the Statement of Financial Position as at 31 December
2016

Statement of Financial Position as at 31 December 2016

RM RM RM
Non-current assets:
Land 30,000
Motor vehicles 15,000
Less: Depreciation (4,500) 10,500 40,500

Current assets:
Inventories 1,800
Receivables (debtors) 6,552
Cash 1,260 9,612
50,112
Equity:
Opening balance 40,447
Add: Profit for the year 7,535
Closing balance 48,012
Current Liabilities:
Payables (creditors) 2,100
50,112

In preparing the budgets, additional information for the following year 2017 is as given below:

1. Information relating to inventory of Product MT7.

Product MT7
Selling price RM26
Purchase Price (Cost of goods sold) per unit RM10

2016 2017
4th Qtr 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units Units Units Units Units
Opening inventory xx 180 50 110 185
Closing inventory 180 50 110 185 310

2. Projected sales for each of the four quarters:

2016 2017
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales (units):
Product MT7 700 400 600 700 800

10% of sales is expected to be on a cash basis. 60% of the credit sales are expected to be
collected in the same quarter the sales took place, and the remaining 40% in the quarter that
follows.

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3. Payments during each quarter:

2016 2017
4th Qtr 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
RM RM RM RM RM
Purchases of merchandise
3,000 ? ? ? ?
(Note below)
Wages and salaries 6,250 7,300 7,000 8,000
Other expenses 3,125 4,650 2,700 3,000
Purchase of a new motor
? ? ? ?
vehicle (see Information 4)

Note: Purchases of inventory are all on credit. The supplier allows Mulu Enterprise to
pay 30% of the cost of goods sold in the quarter of purchase and 70% in the quarter
that follows.

4. The business plans to acquire a new motor vehicle (cost RM4,000), and a computer (cost
RM2,500) in September 2017. Two new tables for the administration department (each
costing RM550) are also expected to be purchased in October 2017. To partly finance the
new acquisitions, the business expects to take a bank loan of RM4,500 on 1 September 2017.
Interest of 10% per annum is payable twice yearly, at the end of June and end of December.

5. The business is also an agent for a supplier of sports equipment, and is given an agency fee
of RM2,000 per year. The fee is payable semi-annually on 1st April and 1st October.

6. Depreciation of non-current assets for the year 2017 is:

RM
Motor vehicle 400
Office equipment 500
Furniture 110
1,010

You are required to prepare for the followings:

a) Sales budget
b) Inventory purchases budget
c) Capital expenditure budget
d) Cash budget
e) Budgeted Statement of Profit or Loss for the year ended 31 December 2017 and
Budgeted Statement of Financial Position as at 31 December 2017.

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ANSWER

a) Sales Budget
Sales Budget for the year ending 31 December 2017
2017
st st
1 Quarter 1 Quarter 1st Quarter 1st Quarter

Sales units

RM RM RM RM
Selling price per unit
Desired / Targeted Sales (RM)

b) Merchandise / Inventory Purchases Budget

This budget shows the expected costs of the planned purchases of inventory required to meet
the sales requirements.

Inventory Purchases Budget

2017
1st Quarter 2nd Quarter 3rd t Quarter 4th Quarter
(units) (units) (units) (units)
Desired sales units
Add: Planned Closing stock
Units required
Less: Opening stock
Units to be purchased

RM RM RM RM
Cost per unit
Total purchases

OR (Budget in RM)

Inventory Purchases Budget

2017
1st Quarter 1st Quarter 1st Quarter 1st Quarter
RM RM RM RM
Cost of Goods Sold / Cost of Sales
Add: Cost of Closing stock

Less: Cost of Opening stock

Total cost of purchases

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c) Capital Expenditure Budget

- This budget shows the planned investment in capital assets (property, plant and equipment).
Investment in these assets affect the depreciation expense and the interest expense (if the
acquired assets were funded by loans).

QUARTER
1 2 3 4
RM RM RM RM
Motor vehicle
Computer (Office equipment)
Tables (Furniture)
Total investments in PPE

d) Cash Budget for the year ended 31 December 2017

QUARTER
1 2 3 4
RM RM RM RM
Receipts (inflow):
Cash sales @ RM26
From customers (credit sales):
Sales in same Qtr
Sales of previous Qtr
Bank loan
Agency fee
Total receipts

Payments (outflow):
To suppliers of inventory:
Purchases in same Qtr
Purchases of previous Qtr
Wages
Other costs and expenses
Purchase of new PPE
Interest on Loan
[RM
Total payments

Surplus / (Deficit)
(inflow outflow)
Opening cash balance
Closing cash balance

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Note:
Workings:
A: Receipts from Sales

Product MT7
2016 2017
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales (units)
Cash Sales (10%)

Credit Sales (90%)

Receipts from credit customers:

Credit sales in: Cash collected in the same Cash collected in the next
quarter as sales (60%) quarter (40%)
2016: 4th Quarter RM RM
units x RM26
= RM

2017:
1st Quarter: units x RM26
= RM
2nd Quarter: units x RM26
= RM
3rd Quarter: units x RM26
= RM
4th Quarter: units x RM26
= RM

B: Payments to Suppliers

2016 2017
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
RM RM RM RM RM
Purchases (RM)

Credit purchases in: Cash paid in the same Cash paid in the next quarter
quarter as purchases (30%) (70%)
RM RM
2016: 4th Quarter :
2017:
1st Quarter:

2nd Quarter:

3rd Quarter:

4th Quarter:

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e)
Mulu Enterprise
Budgeted Statement of Profit or Loss for the year ended 31 December 2017

RM RM
Sales
Less: COST OF GOODS SOLD
Opening inventories
Add: Purchases
Cost of goods available for sale
Less: Closing inventories
Gross Profit / (Loss)

Add: Other income

Agency fees

Less: Expenses
Wages & Salaries
Other expenses
Depreciation
Interest on loan
Net Profit / (Loss)

Budgeted Statement of Financial Position as at 31 December 2017

RM RM RM
Non-current assets:
Land
Motor vehicles
Less: Accumulated Depreciation
Office equipment
Less: Accumulated Depreciation
Furniture
Less: Accumulated Depreciation

Current assets:
Inventories
Receivables (debtors)
Bank

Equity:
Opening equity
Add: Profit/ (Loss)

Non-current liabilities:
Bank loan

Current Liabilities:
Payables (creditors)
Bank overdraft

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