Question 2

Snow White Sdn Bhd (SWSB) manufactures and sells product XYZ. Budgeted units to be sold for each quarter of the year 2018 are as follows:

Q1 8,000

Q2 10,000

Q3 12,000

Q4 12,500

The selling price is RM120 per unit. The sales at SWSB consist of 20% cash and 80% credit. SWSB expects that 70% out of credits sales are collected in the quarter of sales, 25% in the next following quarter of sales and 5% is uncollectible. Fourth quarter sales for prior year were 6,800 units.

SWSBs policy is to have 20% of next quarters sales in ending inventory. Ending inventory of product XYZ for the last quarter is 1,000 units and the beginning inventory is 500 units.

Each product XYZ require 4 kg of material A. Company policy requires that ending inventories of materials for each quarter to be 20% of the next quarters production needs. That policy was met for the ending inventory of fourth quarter in the prior year. At the end of the year, the desired ending inventory of materials A is 1,800 kg. The cost of material of 1 kg of material A is RM8.50. Total purchases for the fourth quarter of prior year were RM62,000.

SWSB purchases all material on account where 85% of purchases are paid for in the quarter of purchase, the remaining 15% are paid for in the following quarter.

Each unit of product XYZ takes 1.2 direct labour hours. The rate per hour is RM8 per hour. Direct labour cost are paid for in the quarter incurred.

Variable overhead is budgeted at RM0.80 per direct labour hour. Fixed overhead totals RM28,000 each quarter, including RM1,000 depreciation. All overhead expenses are paid for in the quarter incurred.

Variable selling and administrative expenses are budgeted at RM6 per unit sold. Fixed selling and administrative expenses total RM5,000 per quarter, including RM500 depreciation. All selling and administrative expenses are paid for in the quarter incurred.

Corporate income tax is approximately RM5,000 and will be paid at the end of fourth quarter.

Proceeds-sales of securities are as follows:

Q1 RM50,000

Q2 RM60,000

Q3 RM80,000

Q4 RM90,000

The beginning cash balance equals RM285,000.

Required:

Prepare the following budget:

a) Sales budget (3 marks)

b) Production budget (5 marks)

c) Direct materials purchase budget (6 marks)

d) Direct labour budget (4 marks)

e) Manufacturing overhead (4 marks)

f) Selling and administrative (4 marks)

g) Schedule of cash collection (7 marks)

h) Schedule of payment (7 marks)

i) Cash budget (10 marks)