You have just been hired as a new management trainee by SunColor Berhad, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price at RM10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months are as follows:

RMRM

Actual January20,000Budget June50,000

Actual February26,000Budget July30,000

Actual March40,000Budget August28,000

Budget April65,000Budget September25,000

Budget May100,000

The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid RM4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase and the other half is paid for in the following month. All sales are on credit, with no discount and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected in the month of sales. An additional 70% is collected in the following month and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:

Sales commissions4% of sales

Fixed:

AdvertisingRM200,000

Rent18,000

Salaries106,000

Utilities7,000

Insurance3,000

Depreciation14,000

Insurance is paid on an annual basis in November of each year. The company plans to purchase RM16,000 in new equipment during May and RM40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of RM15,000 each quarter, payable in the first month of the following quarter.

A listing of the company's ledger accounts as of March 31 is given below:

Assets

CashRM74,000

Accounts receivable (RM26,000 February sales;346,000

RM320,000 March sales)

Inventory104,000

Prepaid insurance21,000

Property and equipment (net)950,000

Total Assets1,495,000

Liabilities and Stockholders' Equity

Accounts payableRM100,000

Dividends payable15,000

Capital Stocks800,000

Retained Earnings580,000

Total Liabilities and Stockholders' Equity1,495,000

The company maintains a minimum cash balance of RM50,000. All borrowing is done at the beginning of a month, any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of RM1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of RM1,000), whilestill retaining at least RM50,000 in cash.

REQUIRED:

Show a master budget for the three-month period ending June 30. Include the following detailed budgets (by month and in total):

1.a. Sales budget

b. A schedule of expected cash collections from sales

c. A merchandise purchases budget in unit and RM

d. A schedule of expected cash disbursements for merchandise purchases

(25 Marks)

2.Cash Budget. Determine any borrowing that would be needed to maintain the minimum cash balance of RM50,000.

(25 Marks)

3.A budgeted Income statement for the three-month period ending June 30 using Marginal approach.

(15 Marks)

4.A budgeted Balance Sheet as of June 30.

(10 Marks)

(TOTAL: 75 MARKS)

QUESTION 2

Malaysia Magazine Bhd produces a sports magazine which is sold for RM9.00 per copy. During the month of July 2018, a total of 25,000 magazines were produced and sold. The following costs for the month were available:

RM

Direct labour1.50

Direct material2.50

Direct expenses0.50

Variable costs per copy4.50

Fixed monthly expensesRM

Electricity6,500

Rental of building12,000

Depreciation of printing machine7,500

Salaries and wages19,000

REQUIRED:

i.Calculate the break-even point for the magazine in number of copies and in ringgit.

(6 marks)

ii.Calculate the margin of safety for the magazine in number of copies and in ringgit.

(6 marks)

iii.Calculate how many copies should be sold to achieve a target profit of RM75,000, if selling commission of RM0.50 is given per copy of magazine sold.

(5 marks)

iv.Referring to the original data, the marketing manager proposed to make an advertising campaign which would cost RM9,000. The unit sales are expected to increase by 20%. Calculate:

a.The net profit if the proposal is accepted.

b.The new break-even point in number of copies if the proposal is accepted.

(8 marks)

(TOTAL: 25 MARKS)