Q2

Teratai Sdn Bhd requires assistance in developing cash and other budget information for May, June and July. At April 30, the company had cash of RM11,000, accounts receivable of RM874,000, inventories of RM618,800 and accounts payable of RM266,110. The budget is to be prepared on the following assumptions:

(a) Each months sales are billed on the last day of the month.

(b) Customers are allowed a 2 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts)

(c) The billings are collected as follows: 70 percent within the discount period, 15 percent by the end of the month, and 12 percent by the end of the following month. Three percent is uncollectible.

Purchase data are as follows:

(d) Of all purchases of merchandise and selling, general, and administrative expenses, 60 percent is paid in the month purchased and the remainder in the following month.

(e) The number of units in each months ending inventory equals 120 percent of the next months units of sales.

(f) The cost of each unit of inventory is RM10.

(g) Selling, general and administrative expenses, of which RM4,000 is depreciation, equal 15 percent of the current months sales.

(h) Actual and projected sales follow:

	RM	Units
March	708000	11800
April	726000	12100
May	714000	11900
June	684000	11400
July	720000	12000
August	732000	12200

Required :

a) Calculate budgeted purchases in ringgit for May and June.

b) Budgeted cash collection during May

c) Calculate the budgeted cash disbursement during June.

d) Calculate the budgeted number of units of inventory to be purchased during July. (9marks)

e) FIFO and weighted average are two methods of valuation of inventory in process costing. Define these two methods and discuss the following:

i.If costs increase from one period to another, discuss whether costs transferred out of one department are higher or lower under FIFO compared to weighted average costing, and explain your answer.

ii.Prior department costs behave similarly to direct materials costs. Advise under what conditions are the costs similar and why they should account for them separately.

iii.Advise the factors to consider in order to make a decision about FIFO or weighted average costing. (11marks)