Question
You are an accountant at Sepang Bikes Company, Sepang Bikes Company is a manufacturer of durable bicycles. The marketing manager expects an increase in sales
You are an accountant at Sepang Bikes Company, Sepang Bikes Company is a manufacturer of durable bicycles. The marketing manager expects an increase in sales of rugged bikes due to the success of the ongoing advertising campaign. Therefore, the management asks you to prepare a master budget taking into account the increase in sales.
To prepare a budget, information must be collected in advance from various sources such as sales prices, expenses involved, the cost of raw materials and so on. The following information has been collected:
1. The estimated sales is 100,000 units of rugged bicycles with a price of RM800 per unit.
2. According to accounting records, the initial stock balance is 2,500 bicycles with a unit cost of RM454.75. With the increase in sales, the management sets the final stock balance is 3,500 units.
3. Initial balance of direct raw materials:
RM
Wheels and tires 20,000
Components 70,000
Frames 50,000
Total 140,000
4. Cost per unit of direct material is expected:
RM
Wheels and tires 20
Component 70
Frame 50
5. The manager wants the final inventory:
RM
Wheels and tires 25,000
Components 87,500
Frames 62,500
Total 175,000
6. Quantity and direct labor cost per unit is expected to:
Labor Hours Cost per hour
Installation 1.5 RM25
Test 0.15 RM15
7. For overhead, you use information you gathered from last years operations and update with current prices. Production overhead costs per unit are expected as follows:
Overhead changes (cost per unit): RM
Supply 20.00
Indirect labor 37.50
Maintenance 10.00
Various 7.50
Total 75.00
8. You expect a total of RM20,200,000 to be spent on fixed manufacturing overhead costs as follows: Depreciation of RM404,000; Property tax: 1,010,000; Insurance: 1,414,000; Factory supervisor RM5,050,000; Fringe benefits: RM7,070,000; Miscellaneous: RM1,616,000. Overhead costs are absorbed by the amount of production spent.
9. You also estimate the operating costs for the support department. These costs are fixed costs: Administrative costs: RM16,478,215; Promotion: RM9,886,929; delivery: RM4,943,465; customer service: RM1,647,821.
10. Income tax is expected at the rate of 30%.
You as an accountant are required to provide:
a. The following budgets:
vii. Budget the cost of sales items
viii. Budget support department
ix. Income Statement Budget
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