MAS2103 COST & MANAGEMENT ACCOUNTING

TUTORIAL BUDGETING

QUESTION 1

Pantai Timur Paper Sdn.Bhd. manufactures two types of paper boxes used in shipping canned food and
fruit. The canned food paper box Type C and the perishable food box Type P have the following material
and labor requirements.

Type of Box
Type C Type P
Direct material required per box:
Paperboard (RM2 per kg) 3 kgs 7 kg
Corrugating (RM1 per kg) 2 kgs 3 kgs

Direct labor required per box (RM12 per hour) 0.25 hours 0.50 hours

The following manufacturing overhead costs are budgeted for next year. The predetermined overhead
rate based on a production volume of 49,500units. Manufacturing overhead is applied on the basis of
direct labor hours.
Manufacturing overhead cost RM
Indirect material 28,500
Indirect labor 50,000
Utilities 25,000
Insurance 16,000
Depreciation 29,000
Total 148,500

The sales forecast for the next year is as follows;

Type of Box Sales Volume Sales Price
Type C 500 boxes RM90 per box
Type P 500 boxes RM130 per box

The following inventory information is available for the next year:

Expected Inventory 1 January Desired Ending Inventory 31
December
Finished Goods:
Box Type C 100 boxes 50 boxes
Box Type P 200 boxes 150 boxes

Raw material:
Paperboard 1,500 kgs 500 kgs
Corrugating 500 kgs 1,000 kgs

Required:

Prepare the following budget for Pantai Timur Paper Sdn.Bhd. for the next year.

a) Sales Budget
b) Production Budget
c) Direct Material Purchase Budget
d) Direct Labor Budget
e) Manufacturing Overhead Budget
f) Calculate cost per unit for each of the product.
QUESTION 2

Merong Sdn. Bhd. has budgeted sales revenues as follows:

June (RM) July (RM) August (RM)

Credit sales 135,000 145,000 90,000
Cash sales 90,000 255,000 195,000
Total sales 225,000 400,000 285,000

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 raw material inventory are all on
credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted raw
material inventory purchases are:
June RM300,000
July RM250,000
August RM105,000

Other cash disbursements budgeted: Direct labor and manufacturing overhead of RM30,000 each
month, selling and administrative expenses of RM18,000 each month, dividends of RM103,000 will be
paid in July, and purchase of equipment in August for RM30,000 cash.

The company wishes to maintain a minimum cash balance of RM50,000 at the end of each month. The
company borrows money from the bank at 8% interest if necessary to maintain the minimum cash
balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash
balance on July 1 was RM50,000. Assume that borrowed money in this case is for one month.

Required:

Prepare the following budget for the month of July and August;

a) cash collection budget

b) cash payment for raw material inventory budget
c) cash budget
Question 3

Hujan Berhad manufacturer umbrellas. The company is preparing details budgets for the Second quarter
and has assembled the following information to assist in the budget preparation:

1. Marketing Department has estimated sales as follows for the remainder of the year (in units).
April 30,000 July 20,000
May 70,000 August 10,000
June 50,000 September 10,000
The selling price of the umbrellas is RM12 per unit.

2. The company maintains finished goods inventories equal to 15% of the following month’s sales.

3. Each umbrella requires 4 feet of “Alloy”, a material that is sometimes hard to acquire. Therefore,
the company requires that the ending inventory of “ Alloy” be equal to 50% of the following
month’s production needs. The inventory of “Alloy” on hand at the beginning of second quarter is
72,000 feet. “Alloy” costs RM0.80 per foot.

4. Each umbrella requires 0.4 direct labor-hours and direct laborers are paid RM15 per hour.

5. In addition, the variable manufacturing overhead rate is RM2.50 per direct labor. The fixed
manufacturing overhead is RM84,000 per quarter.

Required:
a) Prepare a sales budget, by month for and in total for the second quarter
b) Prepare a production budget for each of month and in total for the second quarter.
c) Prepare a raw materials purchases budget, by month for and in total for the second quarter.

d) Prepare the company’s direct labor budget for the second quarter.
e) Prepare the company’s manufacturing overhead budget.
f) Calculate the umbrella cost per unit.

QUESTION 4

Kanken Sdn.Bhd. owned by Encik Adib is considering a small business proposal as their second project
starting next year. In order to forecast the first three months (January, February and March 2016) cash
flows of the business, he has asked you to help him with the following information.

1. Sales :

2015 2016
December January February March April
RM20,000 RM60,000 RM70,000 RM80,000 RM70,000

2. Variable cost for each unit:

MaterialRM26
Labor RM8
Overhead RM2

3. Production (in unit) :

2015 2016
 December January February March April
1,200 1,400 1,600 2,000 1,600

4. Suppliers of materials are paid one month after the material is used in production.

5. Wages are paid in the month when output is produced.

6. Variable overhead is paid in the month when the cost incurred.

7. A new office equipment is scheduled for January costing RM5,000 and this is to be paid in March.

8. Customers are expected to pay 50% on cash, 30% in the second month and 15% in the following
month. The reminder is assumed to be a bad debt.

9. Selling and administrative expenses are budgeted at RM20,000 per month. Of the fixed amount,
RM10,000 each month is depreciation expenses.

10. An old machine is to be sold for cash in February for RM9,000.

11. The cash account contained RM20,000 at the end of 31 December 2015. En Adib feels that this
represents a minimum balance that must be maintained.

12. The company has an agreement with a local bank that’s allows the company to borrow and repay
in increments of RM1,000 up to a total loan balance of RM100,000. The interest rate on these
loans is 2.5% per annum. The company would, as far as it is able, repay the loan plus
accumulated interest. At present, the company has no loans outstanding.

Required;

a) Prepare cash collection for the month of January, February and March 2016.

b) Prepare a cash budget for the month of January, February and March 2016.

c) Briefly discuss any TWO (2) objectives of a cash budget.