Glory Berhad is preparing its annual budgets for the year to 31 December. It manufactures and sells one product which has a selling price of RM150. The marketing director believes that the price can be increased to RM160 with effect from 1 July and that at this price the sales volume for each quarter will be as follows:

	Sales Volume
Quarter 1	40,000
Quarter 2	50,000
Quarter 3	30,000
Quarter 4	45,000

Sales for each quarter of the following year are expected to be 40,000 units.

Each unit of the finished product which is manufactured requires four units of component A and three units of component B, together with a body shell C. These items are purchased from an outside supplier.

Currently prices are:

Component A	RM8.00 each
Component B	RM5.00 each
Shell C	RM30.00 each

The components are expected to increase in price by 10 per cent with effect from 1 April; no change is expected in the price of the shell.

Assembly of the shell and components into the finished product requires three labour hours: labour is currently paid at RM10.00 per hour. A 4 per cent increase in wage costs is anticipated to take effect from 1 October.

Variable overhead costs are expected to be RM10 per unit for the whole of the year; fixed production overhead costs are expected to be RM240,000 for the year, and are absorbed on a per unit basis.

Opening stocks (inventories) are expected to be as follows:

Finished units	9,000 units
Component A	3,000 units
Component B	5,500 units
Shell C	500 units

Closing stocks (inventories) at the end of each quarter are to be as follows:

Finished units	10% of next quarters sales
Component A	20% of next quarters production requirements
Component B	15% of next quarters production requirements
Shell C	10% of next quarters production requirements

Requirement:

1. Prepare the following budgets of Glory Berhad for the year ending 31 December, showing values for each quarter and the year in total:

1. sales budget (in RM and units)
2. production budget (in units)
3. material usage budget (in units)
4. production cost budget (in RM)

(50 marks)

2. Sales are often considered to be the principal budget factor of an organization.

Explain the meaning of the principal budget factor with regards to sales.

(10 marks)