You are an accountant at Sepang Bikes Company, Sepang Bikes Company is a bicycle manufacturer durable. The marketing manager expects an increase in sales of rugged bikes due to the success ongoing advertising campaigns. So the management asks you provide a ‘master budget’ taking into account the increase in sales.

In order to prepare a budget, information must first be gathered from various sources such as selling price, expenses involved, cost of raw materials and so on. The following is information that 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 then the management sets the final balance of the stock is 3,500 units.

3. Initial balance of direct raw materials:
                                     RM
Wheels and tires 20,000
70,000 components
50,000 frames
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
87,500 components
62,500 frames
Total 175,000

6. The quantity and cost of direct labor per unit is expected to:
Labor Hours Cost per hour
Installation 1.5 RM25
Test 0.15 RM15

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7. For overhead, you use information you gathered from last year’s 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 manufacturing overhead costs remains 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; 

Various:

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:

i. Sales budget

ii. Production budget

iii. Budget of direct raw materials used as well as purchase budget.

iv. Direct labor budget

v. Factory overhead budget

vi. Final stock budget

vii. Budget the cost of sales items

viii. Budget support department

ix. Income Statement Budget

b. Briefly explain FOUR (4) importance of cash budget and how they relate with organizational strategy.