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Coursework submission form: Group Assignment - GRPUP NO.07

Student Names Index Number (NSBM) Index Number (Plymouth)

MALSHA AMARASINGHE BSC-PLY-MGT-16.1-005 10601263

BIYONI GANHEWAGE BSC-PLY-MGT-16.1-034 10601312

UTHTHARA GUNASINGHE BSC-PLY-MGT-16.1-154 10601314

CHAMODI SANDUPAMA BSC-PLY-MGT-16.1-162 10601271

Coursework Title PREPARE DIFFERENT TYPES OF BUDGETS FOR

SELECTED ORGANIZATION

Year of Study and semester 2018 - 2ND YEAR - 2ND SEMESTER

Program Specialization BSC. (HONR.) ACCOUNTING & FINANCE

Module Code
ABF205SL

Module Title MANAGEMENT ACCOUNTING

Module Leader MS. MAITHRI VIDANAKARIYA KARANAGE

Co-Module Leader (if applicable)

Date Submitted 22ND OF MARCH 2018

Date Received

Grade / Mark

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STUDENTS SHOULD KEEP A COPY OF ALL WORK SUBMITTED.

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see the University’s Policy on Late Submission of Coursework, (https://www.plymouth.ac.uk/)

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To copy another person’s work is viewed as plagiarism and is not allowed. Any issues of plagiarism and any form of academic
dishonesty are treated very seriously. All your work must be your own and other sources must be identified as being theirs, not
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Declaration of Authorship
I declare that all material in this assessment is my own work except where there is
clear acknowledgement and appropriate reference to the work of others.

Signed; P.B.Ganhewage Date: 22ND OF MARCH 2018

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Table of Contents

01. Introduction .....................................................................................................................1-6

1.1 Background of the company .................................................................................... 1
1.2 Introduction to the company .................................................................................... 1
1.3 Budgeting Process .................................................................................................2-6
02. Developing Budget ........................................................................................................7-18
2.1 Sales Budget............................................................................................................. 7
2.2 Production Budget ................................................................................................ 8-9
2.3 Material Usage Budget ..................................................................................... 10-12
2.4 Material Purchase Budget .................................................................................12-13
2.5 Labor Usage Budget ......................................................................................... 13-14
2.6 Cash Budget ......................................................................................................14-15
2.7 Master Budget ...................................................................................................16-18
03. Findings........................................................................................................................ 19-20
04. Suggestions........................................................................................................................ 21
05. Conclusion ........................................................................................................................ 22
06. References ......................................................................................................................... 23
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01. INTRODUCTION

1.1 Background of the company

Richard Pieris & Company PLC is one of largest diversified manufacturing company in Sri
Lanka and it was established in 1940; and they have extended their operations to many
sectors such, plastic and furniture, rubber, financial and other…etc. With more than 25000
employees, company has become one of the largest employers in the private sector. Also,
they have built their own reputation in the market through their brand names such as Arpico,
Arpitec, Arpidag…etc. Throughout eight decades of Excellence, company is giving a massive
support to the national economy.

1.2 Introduction to the coursework

Budgeting process is a procedure by which an organization or individual goes about building

their budget and create and manage a financial plan. Budgets are usually made by the
budgeting committee. The process is planning their future probabilities for a specified period.
There are eight stages in the budgeting process. The very first step is communicating
information about budget policy and guidelines to those people responsible for preparing
their budget. Other stages are determining the factor that restricts output, preparation of sales
budget, initial preparation budget, negotiation budget with their higher managers, review the
budget, final acceptance of budget and outgoing review of the budget.

By studying the report, we can identify the

budgeting process of Richard Peiris Tyre Company limited. According to the details that
provided by company; we have prepared sales budget, production budget, material usage
budget, material purchase budget, labor budget. Cash budget and the master budget of the
company; and the budgets are prepared for four main tyre products which are manufacturing
by the company. They are conventional, pre-cured, “Saviya” and Arpi Radial. Except cash
budget, have prepared all the budget based on annual basis and the cash budget is prepared
based on quarterly basis.
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1.3 Budgeting Process

Richard Pieris Tyre Co Ltd, is preparing their budgets according to their budget committee,
which is comprised with a management accountant, a chartered accountant and other
managers such as human resource manager, marketing manager, sales manager, production
manager and finance manager etc. From their budgets they describe the objectives and
process which involved when preparing budgets and it will deliver beneficial information to
the parties who involved in decision making. As per the Richard Pieris Tyre Co Ltd, they are
forming budgets in an annually basis. After the forming all the budgets, all the details should
be presented to the budget committee within a month. According to the Colin Drury,
budgeting process can be divided in to eight main steps such as,

 Communicating details of budget policy and guidelines to those people accountable

for the preparation of budgets.
 Determining the limiting factor.
 Preparation of the sales budget.
 Initial preparation of various budgets.
 Negotiation of budgets with superiors.
 Coordination and review of budgets.
 Final acceptance of budgets.
 Ongoing review of budget

(Drury, 2012, p. 364)

1. Communicating information of the budget policy.

The decisions that affecting to the budgets of the upcoming year of Richard Pieris Tyre Co
Ltd has been taken according to the previous judgments as a part of the long-term budgeting
process. Extended variety plan is the starting point and the main point of preparation of
making the contemporary budget. Policies of the expertise can be decided expansion of the
sales, material purchases etc. And the other important guidelines that administrate the
preparation for allowances distributed for upper level managers, prices and wages increases,
projected changes in productivity of the manufacturing different types of tyres. Company’s
policy is to form overall budgets to the main products of the company such as conventional
tyres, pre-cured tyres, saviya tyres and arpi radial tyres. Also company should be aware about
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the market demand and the number total production units should be transferred to the budget
committee. It is crucial that all the managers should be aware of the polices and its changes
which has done by the top level managers of the company. As well the budget committee
should identify and predict the uncontrollable factors of the company and try to respond them
positively such as sales demand for “saviya” tyres will be lower than conventional, pre-cured
and arpi radial tyres in next budgeted period and the company must increase their other
products productivity or should advertise the particular product more in the market for
product “saviya”.

2. Determining the limiting factor.

In any organization there is a factor which restricts its performance for a particular period of
time. Richard Pieris Tyre Co Ltd also identified its limiting factor as sales demand. It is
probable that the company has to restrict its production, if company excess its budgeted sales
demand because there is no point of producing excess amount if the company cannot sell the
excess production. So before preparing budgets subjected company’s top management is
deciding their limiting factor and the amount of products that maximizes its production when
limiting factor exits would be selected for receiving higher output from the particular
products. According to the Richard Pieris Tyre Co Ltd its budgeted sales units and budgeted
production units for 2018/2019 year for conventional, pre-cured, saviya, arpi radial can be
shown as below.

Budget Conventional Pre-cured “Saviya” Arpi Radial

Sales Budget 58,330 315,345 19,080 31,205

(Units)

Production 59,059 319,287 19,319 31,595

Budget (Units)

So it is noticeable that all the products budgeted

production units are higher than budgeted sales units because company has forecasted sales
demand as their limiting factor and though their production quantity is higher than their sales,
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they will not be able to sell the whole amount they produced. By looking at budgeted sales,
mentioned company can identify that their production restricts by the sales and it may vary
from customer perceptions about their tyres, customers income level etc.

3. Preparation of the sales budget.

The volume of sales depends on how the company functions and manufactures. However the
output depends on sales because it is the factor which restricts the output and the operations
of the company. Because of that reason, sales budget is the most important and the crucial
budget in annual budgeting procedure. As well this this is the most difficult part in budgeting
procedure because the company has to observe market trends, customer perceptions and
income level of the customers etc, when deciding the budgeted sales units. Eg: By observing
market demand, conventional sales units of 58,330 is receiving as final sales figure and when
deciding the price rate as Rs. 4,812 also should consider the previous year budgeted sales
price and the market demand for the product. Sales demand can be influenced by
competitors’ prices such as Maxxis tyres.

4. Initial preparation of various budgets.

The managers of the company are the ones who responsible for making functional budgets or
the initial budgets. Company is processing these budgets quarterly but as per their policy the
final functional budgets excluding cash budget, they are preparing annually. As functional
budgets they are preparing sales budget, purchase budget, material usage budget, labour
usage budget, cash budget etc. Preparation of initial budgets is one of the important things
when it comes to the budgeting process. Selected company is using “bottom up” process
when preparing budgets. Bottom up process is the process, which takes information from the
company’s lowest level managers to the highest level management. Because, as an example
lower level managers of the company are the ones who known the people who are working
under them as employees because they are straight away reporting to lower level managers.

When preparing budgets company concerns

about past data which can be used as starting point of the budgets. However considering past
data is not meant that company may assume that past incidents may occur in the future as
well. But budget committee can take an idea about the future by looking at past data. So the
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top management can identify changes may occur for the future conditions and can take
account for that too. As an example the pricing policy of the company is constant during past
two periods because no special occasion has happened to change the price rates.

5. Negotiation of Budgets

In a world described by expanding weight from budgetary and item showcases, the topic of
how exogenous constrains influence inside coordination and control forms has turned out to
be progressively essential. This test investigates how two exogenous constrains that superiors
can face in budget negotiation settings, expanded opportunity costs and financial pressure to
meet unit targets, influence budget negotiations and subordinate effort. The outcomes
demonstrate that the two constrains incite more participation, yet in various ways. Budgetary
weight on the superior leads to more cooperative arrangement conduct by superiors and
subordinates than expanded opportunity costs. Subordinates don't exploit the superior's
expanded money related weight than implement bring down spending plans. After
arrangement, the two limitations unequivocally alleviate the negative impacts of predominant
spending inconvenience on subordinate exertion because exogenous constrains dispense with
the impact of procedural decency contemplations on subordinate exertion.

6. Coordination and review of the Budget

As the individual budgets move up the structure hierarchy within the negotiation method,
they must be examined in relatively one another. This examination might indicate that some
budgets square measure out of balance with alternative budgets and want to modify in order
that they're going to be compatible with alternative conditions, constraints and plans that
square measure on the far side a manager’s data or management. For an example, the plant
manager of Richard Peiris might embrace equipment replacement in his or her budget once
funds square measure merely not on the market. The accountant of the company will identify
such inconsistencies and convey them to the eye of the suitable manager. Any changes in the
budgets ought to be created by the accountable managers of the company, and this could need
that the budgets be recycled from the lowest to the highest for a second or maybe a third time
till all the budgets square measure coordinated and square measure acceptable to any or all
the parties concerned. Throughout the coordination method, a budgeted comprehensive
income statement, statement of financial position and cash flow statement ought to be ready
to make sure that everyone the components combine to supply a suitable whole. Otherwise,
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any changes and budget recycling are necessary till the budgeted comprehensive income
statement, statement of financial position and cash flow statement prove to be acceptable.
(Drury, Management and Cost Accounting, 2012)

7. Acceptance of the budget

When the entire budgets area unit consonant with one another, they are summarized into a
master budget consisting of a budgeted Comprehensive income statement, statement of
financial position and cash flow statement. After the master budget has been approved by the
budgeted committee of the Richard Peiris Ltd, then the approved budgets will be passed
down through the organization hierarchy to the necessary responsible departments. The
approval of the master budget is that the authority for the manager of each responsible
department to hold out the plans contained in every budget. (Drury, Management and Cost
Accounting, 2012)

8. Budget review

Company should not stop their budgeting process even after the acceptance of the budget.
When the budgeting period is eventually coming to an end the actual figures should be
compared with the budgeted figures/ data. Then the company can investigate the reasons for
the differences of the actual and budgeted figures. When they compare those two figures we
can improve our next estimations more accurately. “Budgeting should be seen as a
continuous and dynamic process” (Drury, Management and Cost Accounting, 2012).
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02. DEVELOPING BUDGETS

It is company's policy to prepare all the functional budgets annually and cash budget
quarterly basis

2.1 Sales Budget - Calculating budgeted total sales value

 Conventional
As mentioned by the company sales budget can be defined as follows; Rs.
280,660,052 (58,330 units X Rs. 4,812)

 Pre-Cured
As mentioned by the company sales budget can be defined as follows; Rs.
1,583,382,978 (315,345 units X Rs. 5,021)

 Saviya
As mentioned by the company sales budget can be defined as follows; Rs. 92,535,575
(19,080 units X Rs. 4,850)

 Arpi Radial
As mentioned by the company sales budget can be defined as follows; Rs.
213,942,851 (31,205 units X Rs. 6,856)
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2.2 Production Budget - Calculating budgeted production units for the

period

Company policy is to keeping monthly stocks; however the budget is made for
annually basis

 Conventional
Their valuation for closing stock is 1/12 of budgeted sales units which is 4861 units
(58,330units X 1/12)

Valuation of opening stock is 1/12 out of 85% of budgeted sales units which is 4132
units (58,330units X 1/12 X 85%)

As per their policy we have calculated budgeted production units for the period as
59,059 units (58,330units + 4861units -4132units)

We assume that the excess units between sales and production budgets are the buffer
stock of the company which is for the unexpected situations of the company. (59,059
units - 58,330units = 729 units)

 Pre-Cured
Their valuation for closing stock is 1/12 of budgeted sales units which is 26,279 units
(315,345units X 1/12)

Valuation of opening stock is 1/12 out of 85% of budgeted sales units which is 22,337
units (315,345units X 1/12 X 85%)

As per their policy we have calculated budgeted production units for the period as
319,287 units (315,345units + 26,279units - 22,337units)
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We assume that the excess units between sales and production budgets are the buffer
stock of the company which is for the unexpected situations of the company.
(319,287 units - 315,345units = 3942units)

 Saviya
Their valuation for closing stock is 1/12 of budgeted sales units which is 1590 units
(19,080units X 1/12)

Valuation for opening stock is 1/12 out of 85% of budgeted sales units which is 1352
units (19,319 units X 1/12 X 85%)

As per their policy we have calculated budgeted production units for the period as
19,319 units (19,080 units + 1,590 units - 1,352 units)

We assume that the excess units between sales and production budgets are the buffer
stock of the company which is for the unexpected situations of the company (19,319
units - 19,080units = 239 units)

 Arpi Radial
Their valuation for closing stock is 1/12 of budgeted sales units which is 2600 units
(31,205units X 1/12)

Valuation for opening stock is 1/12 out of 85% of budgeted sales units which is 2210
units (31,205 units X 1/12 X 85%)

As per their policy we have calculated budgeted production units for the period as
31,595 units (31,205 units + 2,600 units – 2,210 units)

We assume that the excess units between sales and production budgets are the buffer
stock of the company which is for the unexpected situations of the company (31,595
units – 31,205units = 390 units)
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2.3 Material Usage Budget - Calculating budgeted total material cost for
the production

2.3.1 Natural Rubber

 Conventional - Total requirement for natural rubber for budgeted production units
are 250,231 units at Rs.278.16 per unit

 Pre-Cured - Total requirement for natural rubber for budgeted production units are
1,411,713 units at Rs.278.16 per unit

 Saviya - Total requirement for natural rubber for budgeted production units are
82,503 units at Rs.278.16 per unit

 Arpi Radial - Total requirement for natural rubber for budgeted production units are
190,747 units at Rs.278.16 per unit

2.3.2 Chemical Local

 Conventional - Total requirement for Local Chemical for budgeted production units
are 13,142 units at Rs.256.27 per unit

 Pre-Cured - Total requirement for Local Chemical for budgeted production units
are 74,141 units at Rs.256.27 per unit

 Saviya - Total requirement for Local Chemical for budgeted production units are
4,833 units at Rs.256.27 per unit

 Arpi Radial - Total requirement for Local Chemical for budgeted production units
are 10,018 units at Rs.265.72 per unit
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2.3.3 Chemical Imported

 Conventional - Total requirement for Imported Chemical for budgeted production

units are 33,795 units at Rs.265.72 per unit

 Pre-Cured - Total requirement for Imported Chemical for budgeted production

units are 190,659 units at Rs.265.72 per unit

 Saviya - Total requirement for Imported Chemical for budgeted production units
are 11,142 units at Rs.265.72 per unit

 Arpi Radial - Total requirement for Imported Chemical for budgeted production
units are 25,761 units at Rs.265.72 per unit

2.3.4 TTW400X8

 Conventional - Total requirement for TTW400X8 for budgeted production units are
64,982 units at Rs.276.42 per unit

 Pre-Cured - Total requirement for TTW400X8 for budgeted production units are
366,607 units at Rs.276.42 per unit

 Saviya - Total requirement for TTW400X8 for budgeted production units are
21,425 units at Rs.276.42 per unit

 Arpi Radial - Total requirement for TTW400X8 for budgeted production units are
49,535 units at Rs.276.42 per unit

2.3.5 TTW400X10

 Conventional - Total requirement for TTW400X10 for budgeted production units

are 43,271 units at Rs.285.39 per unit
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 Pre-Cured - Total requirement for TTW400X10 for budgeted production units are
244,119 units at Rs.285.39 per unit

 Saviya - Total requirement for TTW400X10 for budgeted production units are
14,267 units at Rs.285.39 per unit

 Arpi Radial - Total requirement for TTW400X10 for budgeted production units are
32,985 units at Rs.285.39 per unit

2.4 Material Purchase Budget - Calculating budgeted total material

purchase cost

 Natural Rubber
Total Production Requirement of Natural Rubber is 1,935,193 units and closing stock
161,266 units will be added and the opening stock of 137,076 units will be deducted.
Total units of 1,959,383 units will be purchase at Rs.278.16. Then budgeted total
material cost will be Rs.545,017,938.

 Chemical Local
Total Production Requirement of local chemical is 101,634 units and closing stock
8,470 units will be added and the opening stock of 7,199 units will be deducted. Total
units of 102, 905 units will be purchase at Rs.256.27. Then budgeted total material
cost will be Rs.26,371,836.

 Chemical Imported
Total Production Requirement of imported chemical is 261,358 units and closing
stock 21,780 units will be added and the opening stock of 18,513 units will be
deducted. Total units of 264,625 units will be purchase at Rs.256.75. Then budgeted
total material cost will be Rs.70,324,895.
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 TTW400X8
Total Production Requirement of imported chemical is 502,550 units and closing
stock 41,879 units will be added and the opening stock of 35,597 units will be
deducted. Total units of 508,832 units will be purchase at Rs.276.42. Then budgeted
total material cost will be Rs.140,649,790.

 TTW400X10
Total Production Requirement of imported chemical is 334,641 units and closing
stock 27,887 units will be added and the opening stock of 23,704 units will be
deducted. Total units of 338,824 units will be purchase at Rs.285.39. Then budgeted
total material cost will be Rs.96,696,731.

Company’s material purchase requirement is higher than material purchase so the closing
stock is higher than the opening stock, so the difference can be identified as buffer stock
which will be used for unexpected situations of the company.

2.5 Labor Usage Budget - Calculating budgeted total labor cost for the
production

 Conventional
To produce one unit 48 labor hours should be needed at a rate of Rs.44.55 per hour. In
order to produce 59,059 units budgeted total labor cost would be Rs.126,297,024.

 Pre-Cured
To produce one unit 260 labor hours should be needed at a rate of Rs.8.58 per hour. In
order to produce 319,287 units budgeted total labor cost would be Rs.712,522,340.

 Saviya
To produce one unit 16 labor hours should be needed at a rate of Rs.134.72 per hour.
In order to produce 19,319 units budgeted total labor cost would be Rs.41,641,009.
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 Arpi-Radial
To produce one unit 26 labor hours should be needed at a rate of Rs.117.20 per hour.
In order to produce 31,595 units budgeted total labor cost would be Rs.96,274,283.

2.6 Cash Budget

As per company details, we have developed a cash budget which shows cash inflows
and outflows as follows.

2.6.1 Cash receipts

 Cash sales - Cash sales represent 45% of budgeted total sales which is
976,734,655.50. Total sales can be identified as Rs.2,170,521,456.68 (280,660,052.46
+ 1,583,382,978 + 92,535,575.01 + 213,945,851.21)
It is company to divide annual cash sales equally into four quarters.

 Receipts from due - From total budgeted total sales 55% is considered as credit
sales and their policy is to collect money from debtors after 3 months from the date of
credit sales. Total credit sales for the period is Rs.1,163,942,131.14 (Q1-
268,602,030.26 + Q2- 250,695,228.25 + Q3- 331,275,837.33 + Q4- 313,369,035.31)
Therefore, ex: Credit sales receipts- Rs.268,602,030.26 (2017/18 quarter 4 credit
sales)

2.6.2 Cash Payments

 Creditors’ payments - Company has Rs.189,515,578.05 creditors closing balance in

2017/18 and company plans to settle the whole amount within 1st 3 quarters
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 Wages - Company policy is to show total direct budgeted material purchase in to 4

quarters according to the quarterly production. (Q1- Rs.288,136,723.51 + Q2-
Rs.156,765,912.28 + Q3- Rs.258,956,775.66 + Q4- Rs.272,875,244.51)

 Material Purchase Budget - Company policy is to show total direct budgeted

material purchase into 4 quarters according to the quarterly production. (Q1-
Rs.259,323,051.04 + Q2- Rs.144, 089,320.99 + Q3- Rs.233,061,097.99 + Q4-
Rs.245,587,719.94)

 Production, Administration, Selling and distribution O/H - All the Total amount of
overheads (Production, Administration, Sales and Distribution) are equally divided
among four quarters as per the company policy

 OD repayments - Due to the deficit of the company in quarter two company plans
to take overdraft of Rs.75,454,365.20 in that particular quarter, with agreeing to pay it
with 22% of interest rate in quarter three. (According to BOC standard OD interest
rate)
Due to the continuous cash deficit company plans to borrow a new bank OD
(Rs.119,644,440.48) in quarter 3 with the agreement of repaying it in quarter 4 at a
rate of 22%
Again, in the 4th quarter company plans to borrow a new bank OD
(Rs.162,418,598.36) with the agreement of repaying it in 1st quarter of 2019/20 at a
rate of 22%.

 Tax payments - In the 1st quarter of 2018/19 company plans to pay 2017/18 4th
quarter tax amount which is Rs.19,209,144.89
The last quarter tax amount of 2018/19 will be paying in 2019/20 1st quarter.
Therefore, after all the above transactions we can identify that there is no closing cash
balance but there is an overdraft which can be cash outflow in future.
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2.7 Master Budget

2.7.1 Statement of Comprehensive Income

 Net Sales
Company policy is to calculate net sales by deducting 2% of NBT from its total
budgeted sales value.

 Cost of Sales
We have taken cost of sales directly from the company details.

 Gross Profit
Gross Profit of the company is amounted as Rs.689,986,796.03

 Other Income
There no other income according to the company details.

 Expenses
Company policy is to pay off all the expenses incurred in the particular period, so
there are no accrued expenses can have identified in the company. The summarized
total expenses can be shown as follows,
- Production Overhead -Rs.58,554.093.95
- Administration Overhead - Rs.70,159,801.22
- Selling and Distribution Overhead - Rs.194,184,568.29
- Depreciation - Rs.18,996,000
- Bad debts - Rs.2,400,000

 PBT
PBT has calculated after deducting 22% of OD interest from the amount of PBIT
amount of Rs.345,692,332.57
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 PAT
PAT has calculated after deducting 28% of tax (standard corporate tax rate) from the
amount of PBT of Rs.302,770,595.32

2.7.2 Statement of Financial Position

 Non-current assets
Property plant & Equipment - Closing balance of Property plant & Equipment has
calculated by deducting accumulated depreciation (60,193,663.29) from the opening
balance of Property plant & Equipment (727,825,384.76)
Accumulated depreciation is calculated as follows,
Opening balance 41,197,663.29
+ Annual Depreciation 18,996,000.00 (727,825,384.76 X 3%)
60,193,663.29 (Rs)

 Current assets
WIP - We assume that WIP amount is equal to 10% of finished goods.
Other current assets figures have already discussed in the previous budgets.

Total assets amount of Rs.1,226,518,258.43 comprises with total non-current assets

(667,631,721.48) and total current asset (558,886,536.96)

 Equity and liabilities

Equity - We assume that there is no change in issued capital, revenue, reserves.
Retained profit is comprises with profit after interest and tax amount which is
calculated in Budgeted Statement of Comprehensive Income.

Liabilities
- Tax Payables
Amount of Rs.25,008,854.12 which is relevant to 2018/19 4th quarter and
should be in paid 2019/20 1st quarter. So, it is a liability to the company.
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- Interest payable for OD

This figure is mentioned in the cash budget.

- Bank OD
Bank OD of Rs.162,448,598.36 which is borrowed in the 4th quarter of
2018/19 to cover the cash deficit and it should be settled in 1st quarter of
2019/20 as per the agreement.

Total equity and liability comprises with capital and reserves (Rs.1,003,322,114,.32),
Non-current liability (0) and current liability (Rs.223,196,144.12)

Total assets of the company equal to the total equity and liabilities of the company.
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03. FINDINGS

 Though the company makes budgets on annual basis, they purchase materials quarterly. It
is obvious that purchasing materials for the whole year is not practical as natural rubber
and the chemicals might be expired and damage.

 The company uses several types of materials stocks which can be identified as natural
rubber, local chemicals, imported chemicals, TTW400X10 and TTW400X8. In valuation
of stocks there are few methods like, first in first out (FIFO), last in first out (LIFO)
highest in first out (HIFO) and weighted average capital (WAC). From these method
company use as FIFO as their inventory valuation method.

 When the company prepares the labour budget they are not representing labour as skilled
and unskilled labour. For an example conventional tyre total labour is 126,297,024 and
pre-cured tyre total labour 712,522,340. Can be identified as total skilled and unskilled
labour.

 When we examine the sales budget and production budget we found out that there are
some excess units in each product. For an example in conventional tyre type the sales
budget shows 58,330 units and the production budget shows 59,059 units. In that case
there is an excess of 729 units. We assume that company has buffer stocks which can be
used for unexpected situations like damages, stock losses from natural disasters etc.

 The suppliers of the company can be identified as both local and foreign suppliers. By
studying the material purchase budget, we can identify the imported chemicals and local
chemicals.

 As mentioned by the company when preparing production budget, they keep 1/12th of
budgeted sales units as their closing stock of the coming year. And also, they keep 1/12 of
out of 85% budgeted sales units as their opening stocks of the coming year.
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 The company has a budget committee who include management accountant, charted
accountant and department mangers as Human resource manager, marketing manager,
sales manager, production and financial managers etc.
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04. SUGGESTIONS

 Company’s policy is to prepare budgets annually basis but we suggest that it’s better if
they practice monthly or quarterly basis because it would be more practical and reliable
when it breaks down in to months or quarters. By taking quarterly basis, company can
identify its mistakes early and can improve them in the next quarter and the company
doesn’t need to wait until the year end to improve their budgets.

 Company’s policy is to prepare labour budget as the total amount but we recommend
them to practice it as break down of skilled and un skilled labour because it would be
more transparent and reliable.

 Company has buffer stocks which can be used for unexpected situations such as damages,
stock losses. Though it is better to keep a buffer stock for safety issues, we recommend
them to reduce the amount of materials that they are keeping as buffer stock because
when the company spends more money for current assets like materials there can be occur
a shortage of working capital. It will affect the company’s day to day activities so we
prefer to have a less amount of units than now as their buffer stock.

 By preparing cash budget, company can identify cash inflows and outflows. As per the
cash budget there is a net cash outflow, to reduce the cash outflow they should reduce
unnecessary payments such as over draft payments which the company has to pay 22%
interest rate. Either company can go for another funding method which has less interest
rate or to avoid such kind of Expenses Company can finance their working capital.

 According to the company, bad debts amount is 2,400,000 and we recommend that
company can reduce that amount by giving discounts to the debtors’ collection period. As
an example giving 3% discount to the debtors who are paying debts within first 3 months
period of the collection.
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04. CONCLUSION

The report is discussing about Richard Pieris tyre Co Ltd’s budgeting process. So under the
selected company we have collected all the raw data and forecasted them for the future
period. Then discussed about how the company is practicing budgeting process and then from
collected raw data we developed functional budgets and master budget for the coming period.
And then by identifying issues or the findings of the budgeting process of the above company
we have built suggestions to improve the company’s growth.
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05. REFERENCES

Drury, C. (2015). Management and cost accounting, ninth edition. Andover: Cengage
Learning, pp.358-387.

Richard Pieris and Company PLC Annual Report 2016/2017. (2017). [ebook] Richard Pieris
and Company PLC. Available at:
https://www.arpico.com/contents/pdf/annual_reports/rpc/RPC_Annual_Report_2016-17.pdf
[Accessed 16 Mar. 2018].