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 RM$90$ per unit. The selling price of the product for $2022$ was RM$85.$

The sales department have estimated that the bulk of the sales will be in the $2$nd and $3$rd quarter of the year. For the $1$st quarter, sales will be $10\%$ of the annual sales, the $2$nd and $3$rd Quarter, sales will be $30\%$ and $40\%$ respectively while for remaining will be in the $4$th Quarter. It is expected customers always pay $100\%$ of their purchases within the same quarter. However, in the $3$rd quarter $90\%$ will be collected in the quarter and the remaining amount in the next quarter. For the $4$th 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 $3$kg of raw materials and $4$ hours of labour time to complete. The raw material is RM$10$ per kg and workers are paid RM$7$ 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 RM$1\mathrm{.}50$ 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 $2$nd Quarter of $2023.$

b$.$ An equipment will be purchased in the $1$st 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 RM$12,500$ every quarter. The interest payment of RM$12,000$ 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 $4$th Quarter. It was suggested that dividend amount is

RM$70,000.$

f$.$ The number of ordinary shares is $1$ million units. In $2022,$ the average share price is

RM$1\mathrm{.}20.$ 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 aEBITDAnd 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

$335,000\mathrm{.}0$





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.