Accounting 201801

UKMM1043 Basic Economics, Accounting and Management

ACADEMIC YEAR 2017/2018
TRIMESTER JANUARY 2018

TUTORIAL 7: BUDGETING AND BUDGETARY CONTROL

1. A budgeted Statement of Profit or Loss has been prepared for the Taman Restaurant for the coming
year as follows:
RM’000 RM’000
Sales 2,850
Cost of food and drink 1,140
Gross profit 1,710
Less: Expenses
Salaries 168
Wages 684
Depreciation 36
Repairs 120
Rates 26
Advertising 60
Laundry 8
Interest on Loan 88
Sundry Expenses 92 (1,282)
Net profit 428

Additional Information:
(1) The following pattern of sales is expected:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
24% 20% 24% 32%
(2) 75% of sales are on cash basis and the remaining to be received in the next quarter.
(3) The costs of food and drink vary directly with sales and a constant stock value of supplies
is kept. 20% of purchases are for cash and the rest are paid for during the next quarter.
(4) 80% of the repairs item is for a major redecoration to be paid for in the third quarter.
Payment for the balance 20% is to be spread equally over the remaining three quarters.
(5) Wages, which are variable with sales, are paid in the same quarter they are incurred.
(6) Rates and interest are paid half yearly in the first and third quarters.
(7) All other expense payments are made evenly over the year.
(8) Opening balances will be:
Trade debtors = RM190,000
Trade creditors = RM282,000
Bank overdraft = RM32,000
(9) Capital expenditure of RM300,000 on new equipment installed in the last month of the
previous year will now be paid for in the first quarter.

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Required:
Prepare a cash budget for the four quarters of the year.
2. What are the benefits of budgeting?

3. Venice Sdn Bhd has budgeted sales revenue for 3 months ended 31 March 2017 as follows:

January February March

RM RM RM
Credit sales 54,000 58,000 36,000
Cash sales 36,000 102,000 78,000
Total Sales 90,000 160,000 114,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale
and the remaining 40% will be collected in the following month. Purchases of inventory are
all on credit and 50% is paid in the month of purchase and 50% in the month following
purchase. Budgeted inventory purchases are:

2017 RM
January 54,000
February 36,000
March 90,000

Opening budgeted cash balance on 1 February 2017 is RM3,000.

Other budgeted cash payments:
 selling and administrative expenses of RM19,000 each month
 bonus payment to employees of RM41,400 will be paid in February
 purchase of a delivery van in March for RM62,000 cash

Required:
Prepare the cash budgets for the months of February and March 2017.

4. The sales forecast for Douglas & Co for July – December 2016 is:

Jul Aug Sep Oct Nov Dec

Units 280 200 260 360 400 420

Produce a production budget showing monthly opening and closing inventory figures if the
firm wishes to maintain an even level of producing 300 units each month, and a minimum
inventory level of 150 units in 31st December 2016.

What must the opening stock be at 1 July 2016 to achieve this?

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5. The subsidiary budgets of CB Bhd contain the following information

Month Sales Wages Purchase of Factory Overhead Administration & Selling

Materials Expenses Overhead Expenses
April 700 100 231 150 65
May 550 96 225 140 55
June 650 120 290 185 60
July 600 104 265 154 55
August 550 92 230 138 50
September 500 88 225 135 50

* All figures in RM’000

Additional details are:

(1) 10% of all sales are for cash and experience shows that 5% of all credit sales eventually
become bad debts. These bad debts are not included in the above administration and
selling overheads.
(2) One third of the remaining debtors will pay in the month following delivery, the other
two thirds taking an additional month’s credit
(3) 75% of wages are paid in the month in which they are incurred; the remainder will be
paid in the following month.
(4) Creditors for materials are paid one month after purchase.
(5) Depreciation is included in the above overhead budgets as follows:
Depreciation on Plant & Machinery - RM35,000 per month
Depreciation on Delivery Vans - RM15,000 per month
(6) 20% of the Administration and Selling Overhead expenses are paid in the month in which
they are incurred but all other Overheads are paid in the month following.
(7) New plant, costing RM35,000, is to be paid for in August.
(8) Interim dividends of RM40,000 are to be paid in September.

Required:
Assuming a bank overdraft of RM80,750 on 31 May, prepare a cash budget for each of four
months of June, July, August and September.