TUTORIAL 6: TOPIC – BUDGETING: PLANNING AND CONTROLLING

Question 1

Beta Company wants to prepare master budgets for the month of November and December 2009.
Below is the information regarding a company’s planning and policies.

(a) The following schedule consists of actual and forecasted sales. The selling price of the
product is RM50 per unit.

Month Total sales (RM)

September 180,000
October 156,800
November 179,000
December 194,000
January 200,000
February 210,000

(b) 30% of sales are made in cash, and the balances are on account. Below is the estimated
cash collections from credit sales:

Period Percentage of sales

1st month after sales 60%

2nd month after sales 40%

(c) The company determines that the ending inventory should always equal to 30% of the
cost of goods sold of the following month. The inventory cost (i.e. the cost of goods sold)
averages about 45% of the unit-selling price.

(d) All merchandises are purchased on account, and the schedule of payment is as follows:

Period Percentage of sales

In the month of purchase 25%

In the following month after purchase 75%

(e) Estimated monthly expenses are as follows:

 RM
Salaries expense 5,500
Advertising expense 3,100
Depreciation expense 450
Miscellaneous expense 6,200
Sales commissions 5% of sales

REQUIRED
(a) Prepare the following budgets for the month of November and December 2009:
i. Schedule of cash collections
ii. Purchases, ending inventory and cost of goods sold budgets
iii. Schedule of payments for purchases
(b) Prepare the budgeted income statement for the two-month period ending 31 December
2009.

Question 2

Hi-Tecq Company is one of the prominent distributor for high-tech gadget. The budget
committee of Hi-Tecq Company has assembled the following data concerning the company’s
sales, inventories, purchases and expenses for the second quarter of 2008:

1. The beginning cash balance on 1 April 2009 was RM10,500. The company wants to have
a minimum monthly cash balance of RM10,000. Loan is made at the beginning of the
month at an interest rate of 10% per year. Assume that its repayment is made at the
beginning of the month.
2. Sales for March 2009 was 125 units.
3. Budgeted sales are as follows:
April 200 units

May 150 units

June 270 units

The selling price is RM700 per unit. Only 60% of the total sales are made in cash.
Collection from credit sales will only be received in full in the following month after the
sales.
4. The company’s plan on desired ending inventories are:
April 60 units

May 75 units

June 80 units

Ending inventories for February and March 2009 were 40 and 50 units respectively.
Cost of the goods sold is agreed to be 40% of the selling price. The payments on
 purchases are to be made partially in the month of purchase (20%) and the balance
will be settled in the following month.

5. Administrative expenses:
Salaries RM28,000 per month

Utilities RM 5,000 per month

Depreciation RM20,000 per month

Administrative expenses are paid in the month they incurred.

6. Sales commissions for sales agent are calculated based on 15% of the total sales of the
month. The payments are to be made in the month of sales.
7. The company plans to purchase office equipment in cash totaling RM66,000 in May.

REQUIRED:

Prepare the following budgets for the months of April, May and June 2009:

(i) Schedule of cash collection

(ii) Purchase budget
(iii) Schedule of cash payment for merchandise purchase
(iv)Cash budget
(v) Differentiate between operating and financial budgets. Give TWO examples for each type
of the budgets.