DIPLOMA IN BUSINESS MANAGEMENT (AB101)

PMA1113

INTRODUCTION TO COST AND MANAGEMENT ACCOUNTING

ASSIGNMENT 2

SET L

SECTION AB5.31

PREPARED BY:

PREPARED FOR :
TABLE OF CONTENT

NO CONTENT PAGE

1.0 INTRODUCTION 2-3

2.0 ANSWERS 4-7

3.0 CONCLUSION 8

4.0 REFERENCES 9

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1.0 INTRODUCTION

Most businesses use budgets to effectively organize their activities, investments, and
allocations. By creating a budget, a business can assess its income, sources of income, costs,
performance, and if it has the resources to keep expanding operations. It's essential to
comprehend budgeting methods and how to develop them if you want to be able to make
significant financial judgments and ensure a business runs properly.

The budgeting processes are the strategic actions performed by an organization to develop a
financial plan. Accounting departments rely on these techniques to control business activity,
particularly expenditure. Budgeting processes can be used to keep track of how much money a
company produces and spends over a given period of time. With careful preparation, a firm can
identify and handle income problems.

Since businesses operate in unstable economic environments, budgeting is a continuous

process because plans usually change over time. Consider seasonal planning and an
examination of your finances to make the required modifications and reduce any problems that
could hinder operations. Budget frameworks comprise operating, cash, and capital spending
budgets, which result in budgeted income statements, balance sheets, and cash flow
statements.

There are five types of budgets, firstly is the sales budget. In order to meet the sales budget, the
company must develop a year-long sales projection. Management and the marketing
department will work to generate a sales estimate for the time period, typically for a year, broken
down into quarters or months.

Second, there is the production budget. The sales estimate and the expected amount of
finished goods inventory on hand are combined to form the production budget, which sets the
number of products that must be manufactured which is typically as safety stock to cover for
sudden increases in demand.

Third, there is the direct material purchase budget, which calculates the resources that must be
purchased over a specific time period in order to meet the needs of the production budget. The
annual budget is frequently offered in either a monthly or quarterly format. This budget, which

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may cover the majority of the expenses incurred by the corporation in a product-selling activity,
should be carefully crafted. If not, the outcome may accidentally show that unusually large or
little amounts of cash are required to pay for material purchases.

Fourth, the amount of labor hours needed to produce each itemized unit in the production
budget is calculated using the direct labor budget. Both the total number of hours needed and
the split of those hours by labor type will be computed using a more complex direct labor
budget.

The manufacturing overhead budget includes all manufacturing expenditures other than direct
materials and direct labor. The information in this budget is included into the cost of goods sold
line items in the master budget. The total of all expenditures in this budget has been converted
into a per-unit overhead allocation, which is used to calculate the cost of ending completed
goods inventory, which is then displayed on the budgeted balance sheet. Because it may
contain a considerable proportion of a company's total expenditures, the information in this
budget is among the most relevant of the many departmental budget models. This budget is
usually offered on a monthly or quarterly basis.

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 2.0 ANSWER

Month January - March April - June July - September October - December

Units 100,000 150,000 120,000 140,000

i) Sales Budget
Banano Chips Sdn Bhd
Sales Budget for the
Month ended 31 December 2023
January - March April - June July - September October - December

Sales Unit 100,000 150,000 120,000 140,000

(X) Selling 15 15 15 15
Price (RM)

Total Sales 1,500,000 2,250,000 1,800,000 2,100,000

(RM)

ii) Production Budget

Banano Chips Sdn Bhd

Production Budget for the
Month ended 31 December 2023
January - March April - June July - September October - December

Sales Unit 100,000 150,000 120,000 140,000

(+) Ending
Inventory of 10% X 150,000 10% X 120,000 10% X 140,000 10% X 120,000
Finished
Goods = 15,000 = 12,000 = 14,000 = 12,000

Total Needs 115,000 162,000 134,000 152,000

(-) Beginning 8,000 15,000 12,000 14,000

Inventory of
Finished
Goods

Required 107,000 147,000 122,000 138,000

Production

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 iii) Direct Materials usage and Purchases Budget

Banano Chips Sdn Bhd

Direct Materials Usage and Purchases Budget for the
Month ended 31 December 2023
January - March April - June July - September October - December

Required 107,000 147,000 122,000 138,000

Production

(X) Raw
Materials 0.5 0.5 0.5 0.5
needed per
unit

Production 53,500 73,500 61,000 69,000

Needs

(+) Ending 15% X 53,500 15% X 53,500 15% X 61,000 15% X 69,000
Inventory of = 8,025 = 11,025 = 9,150 = 10,350
Raw Materials

Total Needs 61,525 84,525 70,150 79,350

(Unit)

(-) Beginning
Inventory of 4,000 8,025 11,025 9,150
Raw Materials

Raw Materials
to be 57,525 76,500 59,125 70,200
purchased
(Units)

(X) Cost of
Raw Materials 6 6 6 6
per unit (RM)

Raw Materials
to be 345,150 459,000 354,750 421,200
Purchased
(RM)

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 iv) Direct Labor Budget
Banano Chips Sdn Bhd
Direct Labor Budget for the
Month ended 31 December 2023
January - March April - June July - September October - December

Required 107,000 147,000 122,000 138,000

Production

(X) DL Hours 0.2 0.2 0.2 0.2

Per Unit

Total Direct
Labor Hours 21,400 29,400 24,400 27,600
Needed

(X) Direct
Labor Cost 10 10 10 10
Per Hour
(RM)

Total Direct
Labor Cost 214,000 294,000 244,000 276,000
(RM)

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 v) Manufacturing Overhead Budget

Banano Chips Sdn Bhd

Manufacturing Overhead Budget for the
Month ended 31 December 2023
January - March April - June July - September October - December

Total Direct
Labor Hours 21,400 29,400 24,400 27,600
Needed

(X) Variable 2.50 2.50 2.50 2.50

MOH Rate
Per Hour
(RM)

Total 53,500 73,500 61,000 69,000

Variable
MOH

(+) Fixed 10,000 10,000 10,000 11,000

MOH

Total MOH 63,500 83,500 71,000 80,000

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3.0 CONCLUSION

To summarize, all types of organizations must consider the budget as an important part of their
operations to effectively prepare their activities, investments, and allocations. By preparing a
budget, they can examine the company's income, sources of income, costs, performance, and
financial capacity to continue increasing activities. They must calculate their budget using five
different types of budgets which are sales budget, production budget, direct material purchase
budget, direct labor budget, and manufacturing overhead budget, to provide relevant and
related information about the organization that can be used to improve decision-making.

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4.0 REFERENCES

1. Business budget 101: Importance, Components and Types | Zoho Books

2. What is a sales budget? Use, example, and purpose (zendesk.com)
3. Production budget definition — AccountingTools
4. Material budgeting | Direct materials budget — AccountingTools
5. Manufacturing overhead budget | Overhead budget — AccountingTools
6. Business budget 101: Importance, Components and Types | Zoho Books