QUESTION : Petal Berhad manufactures one product line the Pastel. Sales of Pastel over the next few months are planned as follows:

1. Demand: July 200,000 units, August 250,000 units, September 300,000 units, October 320,000 units. The selling price for each Pastel is RM12.

2. Debtor receipts: Credit customers (receivables) are expected to pay as follows: 60% during the month of sale and 40% during the following month. Credit customers who pay in the month of sale are entitled to deduct a 2 per cent discount from the invoice price.

3. Finished goods inventories: Inventories of finished goods are expected to be 80,000 units at 1 July. The businesss policy is that, in future, the inventories at the end of each month should equal 40 percent of the following months planned sales requirements.

4. Raw materials inventories: Inventories of raw materials is expected to be 50,000 kg on 1 July. The businesss policy is that, in future, the inventories at the end of each month should equal 50 percent of the following months planned production requirements. Each Pastel requires 0.5 kg of the raw material, which costs RM4.50 per kg. Raw materials are paid in full in the following month.

5. Labour and overheads: The direct labour cost of each Pastel is RM2.00. The variable overhead element of each Pastel is RM0.20. Fixed overheads, including depreciation of RM45,000, total RM80,000 a month. All labour and overheads are paid during the month in which they arise.

6. Cash in hand: The business plans to have a bank balance (in funds) at 1 August of RM30,000.

Required:

A. Prepare the following budgets:

i. Finished inventories budget (expressed in units of Pastel) for each of the three months: July, August, and September

ii. Raw materials inventories budget (expressed in kg of the raw material) for the two months July and August.

iii. Cash budget for August and September.

B. Petal plans to acquire a new machine in July for RM3,500,000.

i. Assess the feasibility of this acquisition based on the Cash Budget for August and September.

ii. Based on the Cash Budget, what is your proposal for Petal to pay for this acquisition?

C. Explain TWO (2) ways budgets are useful to managers.