UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY & MANAGEMENT

BACHELOR OF ACCOUNTING (HONS)
UKAM 2043 MANAGEMENT ACCOUNTING II

Tutorial 6

Question 1

Mr Raj is proposing to start his own small business, on 1 July 2015, following his redundancy
last month. Mr Raj has made the following estimates in order to establish his liquidity position
over the next 6 months of trading. This is for the purpose of obtaining a short-term bank loan, or
other means of further funding the business start-up, if required.

(1) The business will commence with RM65,000 in the bank, made up of Mr Raj’s savings and
redundancy pay totalling RM45,000, plus an Enterprise Scheme Loan of RM20,000. Half
of the loan is to be repaid on 30 November. Mr Raj is also obtaining a mortgage on a
property, requiring a deposit of RM10,000 to be paid on 1 July followed by monthly
repayments of RM250 commencing on 20 July.

(2) Equipment and a motor van will be purchased, by cash in July, for RM23,000 and
RM8,000 respectively. The equipment will be depreciated on a straight line basis, at 10%
pre annum, from the date of purchase. The motor van will be similarly depreciated, but at
20% per annum.

(3) Purchases of raw materials are on credit. The purchases are paid for one month after the
purchase. Purchases of raw material are as follows:
June July August September October November December
RM22,00 RM10,000 RM14,000 RM16,000 RM16,00 RM16,000 RM17,000
0 0

(4) Sales, in units, are forecasted to be:

July August September October November December
2,500 3,000 3,000 2,500 3,500 3,500

50% of the units sold each month will have a selling price of RM9 per unit, paid for in the
month after the sale. The remaining units will be sold for RM10 per unit, paid 2 months
after sale.

(5) Four staff will be employed, from 1 July, each paid RM800 per month gross on the last day
of each month. Deductions will be 25% of gross wages, payable in the month following.
Mr Raj will withdraw RM1,000 per month for his own living expenses.
(6) Stock of expense items costing RM1,000 will be purchased in June but payable one month
later. Stock replenishment is expected to cost RM200 per month commencing in August,
with payment one month later.

(7) Advertising will be RM1,500 per month from July to September, followed by expenditure
of RM100 per month, paid for in the month incurred.

(8) Interest on the enterprise scheme loan is 1% per month, payable on the 15th of each month
commencing in July.

Required:

(a) Prepare a monthly cash budget for the period July to December.

(b) Advise Mr Raj what, if any, additional funding is indicated by the cash budget and what
action you would recommend him to take.

(c) Define the term principal budget factor and explain why the principal budget factor is
important in the planning process.

Question 2

Explain the different techniques of budgeting:

a. Incremental budgeting
b. Zero – based budgeting
c. Activity based budgeting

Question 3

(b) Xerux Sdn Bhd which manufactures and sells one product is preparing its budget
for the three months, October, November and December 2019.

Forecast sales are as follows:

Units
October 2019 17,500
November 2019 22,500
December 2019 23,500
January 2020 21,000
February 2020 22,500
The company aims:

- To carry finished goods stock equal to 40% of the following month’s

sales at the end of each month.

- To maintain raw materials stocks at the end of each month equal to

30% of next month’s production requirements

Stocks on 30 September are expected to be:

Finished goods 8,500 units
Material X001 7,500 kg
Material Y001 11,500 kg

Standard marginal product cost details, forecast prices and fixed overheads for the
next 3 months are:-
Material X001 (2kg per unit) RM1.50 per kg
Material Y001 (3kg per unit) RM2.50 per kg
Direct labour 2.0 hours per unit RM1.50 per kg
Variable production overheads 2.0 hour per RM1.50 per labour hour
unit
Variable selling overheads 3.0% of sales value
Forecast selling price RM30.00 per unit
Fixed overheads
Production RM300,000
Selling and distribution RM135,000
Administration RM100,000

Required:

(i) Prepare the following budgets for each month and total for 3 months:
 (A) Production in units. (4 marks)

(B) Purchase for materials X001 in quantity (kg) and value (RM).
(6 marks)

(ii) Suggest 2 reasons for preparing a Purchase budget. (2 marks)

(iii) Budgeting is an effective management tool in business decision

making. Explain TWO (2) reasons why budgeting is important.
(2 marks)