MAF 551 MANAGEMENT ACCOUNTING AND CONTROL

SEMESTER 1 SESI 2021/2022

TUTORIAL 1a: BUDGETING

QUESTION 1
Excellent Sdn Bhd is preparing its budgets for the coming year. It expects to be able to sell 10,000
units of its only product, ExSmart, in January 2021. Sales are then expected to rise to 11,000 units
in February and 14,000 units in March, and then remain stable for the rest of the year.

Excellent Sdn Bhd aims to carry a finished goods inventory at the end of each month equal to 10%
of the following month’s sales. Each ExSmart takes four labour hours to make.

The company’s 280 production workers are employed on contracts that require them to work a
minimum of 160 hours per month and are each paid RM1,280 per month. Production workers are
highly skilled and require a minimum of one year’s training. In short term, it is not possible to recruit
any more production workers. Any labour hours required in excess of 160 hours per worker are
made up by overtime that is paid at basic rate plus an overtime premium of 50%.

You are required to prepare, for the first three months of 2021;

a. A production budget, showing opening and closing inventories of finished goods.

b. A labour budget, showing both hours and labour cost.

QUESTION 2

Kenanga Boxes Sdn Bhd manufactures two types of cardboard boxes used in shipping canned
food, fruit and vegetables. The canned food box CF01 and the perishable food box PF09 have the
following materials and labour requirements:

Type of box
CF01 PF09
Direct material required per 100 boxes:
Paperboard (RM0.30 per kilogram) 20 kg 30 kg
Corrugating medium (RM0.15 per kilogram) 30 kg 70 kg
Direct labour required per 100 boxes 0.25 hour @ RM14 per 0.50 hour @ RM18
hour per hour

The company’s production workers are consisting of 7 workers employed for production of box CF01
and another 12 workers for production of box PF01. The production workers are employed on
contracts basis that require them to work a minimum of 160 hours per month and in short term it is
not possible to recruit any more production workers. Any labour hours required more than basic
available hours, the employees are entitling for overtime payment that is paid at basic rate plus an
overtime premium of 30% for the first 500 hours excess and 40% premium for the remaining excess
hours.

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The following inventory information is available for the month of March 2016:

Inventory Desired Inventory

29 February 2016 31 March 2016
Finished goods:
Box CF01 10,000 boxes 5,000 boxes
Box PF09 20,000 boxes 15,000 boxes
Direct materials:
Paperboard 15,000 kg 5,000 kg
Corrugating medium 5,000 kg 10,000 kg

The sales forecast is as follows:

Sales Volume Sales Price

Box CF01 400,000 RM135 per hundred boxes
Box PF09 600,000 RM195 per hundred boxes

Required:

a) As a newly appointed management accountant of Kenanga Boxes Sdn Bhd, you are
required to prepare the following budget for the month of March 2016:
i) The production budget, showing opening inventory, production and closing inventory.
ii) Direct material purchase budget, showing opening inventory, purchases and closing
inventory in kilograms in a cost.
iii) The labour budget, showing both hours and labour cost.

QUESTION 3

KARRIMOST Sdn Bhd produces various types of outdoor attires and equipment for local market.
One of the popular products is PAKA Hiking Shoes, which came with special packaging and
promotion of free socks until December 2017.

KARRIMOST Sdn Bhd uses an additive time series analysis to forecast sales volume and the trends
of PAKA Hiking Shoes that are subjected to seasonal variations. The budgeted sales volume and
the variations in sales of PAKA Hiking Shoes for the year 2017 are shown below:

Period Jan-March Apr-June July-Sept Oct-Dec

Trend (sales pairs) 12,000 12,500 13,000 13,500
Seasonal variations (pairs) +3,000 +500 0 -2,500
Budgeted sales (pairs) 15,000 13,000 13,000 11,000

The sales trend figures for the first two quarter of year 2018 are estimated to be 14,000 and 14,500
respectively. The variations are expected to reduce by 3,500 pairs for quarter 1 of year 2018 and no
variation impact in quarter 2.

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In order to produce one pair of PAKA Hiking Shoes, the following material and labour hours are
required:

Material CO3 foam 4 units @ RM7 per pack (each pack consists of 2 units CO3 foam)

Labour hours 8 hours

Additional information:

1) The company’s 222 production workers are employed on contract basis that required them to
work a minimum of 160 hours per month and each are paid RM1,280 per month. In short term,
it is not possible to recruit any more production workers. Any labour hours required in excess of
basic available hours, the employees are entitling for overtime payment that is paid at basic rate
plus an overtime premium of 30% for the first 3,000 hours excess and 50% premium for the
remaining excess hours.

2) It is the policy of KARRIMOST Sdn Bhd to always carry sufficient inventory of finished goods to
meet 50% of the next quarter’s forecast sales, and sufficient raw materials to meet 70% of the
next quarter forecast production.

Required:

As a newly appointed management accountant of KARRIMOST Sdn Bhd, you are required to
prepare the following budget for each of the quarters of the year ending 31 December 2017:
i. The production budget in pairs, showing opening inventory, production and closing
inventory.
ii. The purchasing budget, showing opening inventory, purchases and closing inventory in
units and in cost.
iii. The labour budget, showing both hours and labour cost.

QUESTION 4

Ryan Enterprise produces and sells Wooden Plant Shelve for nearby market in Kuala Sepetang.
The business uses a budgeting system to control costs and revenues of its product. Mr. Ryan, the
owner is worried about the business performance. It was reported that sales dropped in early period
of year 2020. However, it seems that the performance is getting better due to the increase in
consumer online purchasing habits.

The head of Account Department asked you to prepare an operational budget for the year ending
31 December 2021. Upon analyzing previous reports, you found the following information regarding
standard cost for one unit of Wooden Plant Shelve:
RM per unit
Wood (RM20/meter) 100
Indirect Materials (RM12/set) 24
Labour Costs (RM20/hr) 10
Production Overhead 21
Production Costs 155

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It is the company’s policy to set selling price at markup of 40% from production costs. The Marketing
Director suggested to increase selling price of the product to RM250, starting from 1 July 2021 due
to an increase in costs of business operations.

Sales assistance provides the following forecast sales trend for each quarter of the year ending 31
December 2021:
Quarter Sales Trend in units
Q1 2,000
Q2 2,500
Q3 1,500
Q4 3,000

Sales Trend are subjected to seasonal variations as follows:

Q1 Q2 Q3 Q4
-400 0 +250 -300

Quarterly sales trend for year 2022 are expected to increase by 2% from the previous quarter,
however, quarterly seasonal variations are expected to be as for Year 2021. The standard material
price is expected to increase by 15% starting from 1 October 2021.

It is the policy of Ryan Enterprise to always carry sufficient inventories of Wooden Plant Shelve to
meet 25% of the next quarter’s forecast sales. All materials are to be maintained at 40% of the next
quarter’s forecast production requirement. However, maximum inventories of Wood should not
exceed 4,500 meters to reduce storage costs.

Required:

a. Prepare the following budgets for each quarters of the year ending 31 December 2021:
i. Sales Budget
ii. Production budget (round of your answer to the nearest unit)
iii. Material Purchase Budget (Wood only)

b. Beyond budgeting is a leadership philosophy that relates to an alternative approach to

budgeting which should be used instead of traditional annual budgeting. Briefly explain the
difference between traditional budgeting and beyond budgeting.