BGV the maker of industrial liquidating agent is preparing the budget for 2023. The sales department has indicated the annual sales of 40,000 units and the selling price to be set at RM90 per unit. The selling price of the product for 2022 was RM85. The sales department have estimated that the bulk of the sales will be in the 2nd and 3rd quarter of the year. For the 1st quarter, sales will be 10% of the annual sales, the 2nd and 3rd Quarter, sales will be 30% and 40% respectively while for remaining will be in the 4th Quarter. It is expected customers always pay 100% of their purchases within the same quarter. However, in the 3rd quarter 90% will be collected in the quarter and the remaining amount in the next quarter. For the 4th Quarter, 85% will be collected in the quarter and the remaining amount in the next quarter. The company intends to have an inventory of finished products of 1,500 units at the end of the budget year. Each quarter will also require an ending finished inventory in order not to be in a situation of a stock out. Each product requires 3kg of raw materials and 4 hours of labour time to complete. The raw material is RM10 per kg and workers are paid RM7 per hour. The production department intends to have 5,000 kg of raw materials at the end of the budget year. Each quarter will also require an ending inventory as a precaution against any shortages in the supply of raw materials. The production requires variable overheads that is set based on direct labour hours. The predetermined rate is RM1.50 per direct labour hour.

Annual Fixed Overhead expenses are as follows: -

a. Factory Rent RM 120,000

b. Depreciation for machines RM 30,000

c. Factory Maintenance and Cleaning RM 60,000

Other non-manufacturing expenses annually are as follows:-

a. Advertising RM 150,000

b. Salaries RM 360,000

c. Office Expenses RM 30,000

d. Depreciation for office equipment is RM 40,000

e. Rent of the administration building is RM 60,000

Additional information

a. The company will be paying the 2022 tax payable in the 2nd Quarter of 2023.

b. An equipment will be purchased in the 1st Quarter at a cost of RM 250,000.

c. Principal payment to reduce the Non-Current Liabilities will be made at every quarter. The amount is RM12,500 every quarter. The interest payment of RM12,000 will also be paid every quarter.

d. Interest rate for any short-term loans will be 8% and the loan must be settled within the same year that it is made. Any extension of payment will need further negotiation with the bank.

e. Dividends will be paid on the 4th Quarter. It was suggested that dividend amount is RM70,000.

f. The number of ordinary shares is 1 million units. In 2022, the average share price is RM1.20. The average industry PE ratio is 6 times.

g. The cost of capital for the company is 12%

INCOME STATEMENT 2022

Sales 2,500,000

Cost of Goods Sold 1,650,000

Gross Margin 850,000

Selling and Administration Expense 540,000

EBITDA 310,000

Depreciation 25,000

EBIT 285,000

Interest Expense 48,000

Earning Before Tax 237,000

Corporate Tax 59,250

Net Income 177,750

Previous Retain Earnings 207,250

Add: Net Income 177,750

Less: Dividends 50,000

New Retain Earnings 335,000.0

BALANCE SHEET 2022

Current Assets Cash 49,250

Trade Receivables 70,000

Raw Materials 80,000

Inventories 200,000

Total Current Assets 399,250

Land 1,000,000

Plant and Machines 1,645,000

Less: Accumulated Depreciation 900,000

Plant and Machines Net 745,000

TOTAL ASSETS 2,144,250

Current Liabilities Trades Payable 150,000

Taxes Payable 59,250

Total Current Liabilities 209,250

Non-Current Liabilities 600,000

Stockholders Equity Common Stock 1,000,000

Retained Earnings 335,000

Total Equity 1,335,000

TOTAL LIABILITIES AND EQUITY 2,144,250

Required:

a. Prepare a complete Master Budget for 2023.

b. Clarify the assumptions and decisions that you have made in preparing the budget.

c. Prepare a performance analysis on the budget which include financial ratio analysis, economic value-added analysis, and market value analysis, between 2022 and the budget.