ASSIGNMENT 2 (20 Marks) (Maximum 2,000 words, 1.5 or 2 line spacing, font size 12) It is now April of 2020. Due to the continuous uncertainties in the global economy, the top management of KUROKI Limited is revising its July to December monthly budget for 2020. The following information is provided to help you, the budget planner, to prepare the monthly budget for the company: 1. The marketing and sales department manager provides the following sales forecasts: Month Units sold Selling price $ Month Units sold Selling price $ April 2,200 May 2,100 June 2,000 July 1,900 August 1,800 September 1,800 280 270 260 250 October November December Jan 2021 Feb 2021 Mar 2021 1,900 2,000 2,100 2,200 2,300 2,400 260 270 270 280 280 280 250 260 2. It is projected that: 20 percent of the month's sales are collected in the month of sales. 30 percent of the month's sales are collected one month after sales. 45 percent of the month's sales are collected two months after sales. 5 percent are uncollectible. 3. Production budget stipulates that the desired monthly finished goods ending inventory is 10 percent of next month's sales. 4. Materials QQ and YY are projected as follows: Material QQ: Each unit produced requires 2 kg of materials at a cost of $5 per kg. Desired ending inventory of materials will be 10 percent of next month's materials needed for production. Material YY: Each unit produced requires 3 kg of materials at a cost of $10 per kg. No ending inventory is required. 6. Purchases are paid according to the following schedule: 40 percent of a quarter's purchases are paid for in the month of purchase. 30 percent of a quarter's purchases are paid one month after the purchase. 30 percent of a quarter's purchases are paid two months after the purchase. 7. Direct labour is projected at 12 direct labour hours per unit at $9 per hour. All direct labour costs are paid for in the month incurred. 8. The factory overhead budget information are as follows: Variable overhead budget is projected at $3 per direct labour hour. Fixed factory overhead budget is at $5,000 per month. Total factory overhead budget includes $600 of depreciation expenses per month. All overhead costs are paid as follows: July and August - Paid in August September and October - Paid in October November and December - Paid in December 9. The projected selling and administration costs are 15% of the projected revenue in the same month, and are paid one month later. 10. The company plans to invest $150,000 each in September and November in new equipment. This investment budget is to comply with the environmental regulations. 11. The opening cash balance for July is $21,000. 12. The target ending cash balance is $200,000. In order to achieve this cash balance level, the firm has an overdraft facility with the UOB Bank, offering a line of credit facility of $100,000 at 2% interest per month on the outstanding balance. Interest is payable in the following month when incurred. Required: Write a budget report to the board of directors of the company. The report should cover the following: (a) Prepare the following monthly budget (June to December) for 2020: 1. Revenue budget 2. Sales collection budget 3. Production budget 4. Material usage and purchases budget 5. Material payment budget 6. Factory overhead budget 7. Direct labour budget 8. Cash flow budget (0.5 + 0.5 + 0.5 + 1.0+ 0.5 +0.5 +0.5 + 3.0 = 7 marks) (b) List and discuss three non-financial factors that you would like to highlight to the management before the budget approval. (3 marks) (c) Do you think the budget will be approved by the management? State your reasons clearly. (5 marks) (d) If the budget is not approved by the management, recommend actions to be taken to rectify the budget. (10 marks) (Total 20 marks)
