Salsabella Berhad manufactures and sells an electrical component. The Covid-19 pandemic has affected the company’s operation due to several lockdown in the country. The company is struggling to manage its cash flows. The business’ bank balance at the end of the year is projected to be an overdraft of RM170,000. As an accountant for Salsabella Berhad, you have prepared the following budgetary information to be presented in a board meeting: Sales volumes are projected as follows:Year 1 Year 2 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 100,000 units100,000 units80,000 units60,000 units140,000 units The selling price of the component is currently RM11.00 per unit and this is expected to increase to RM12.00 per unit from the start of Quarter 2 in Year 2.All sales are on credit and customers settle their debts in the Quarter following sale.Irrecoverable debts of 5% of total sales revenue are anticipated.The company normally holds inventory of 40,000 units at the end of each Quarter and wants this to continue.The electrical components are produced in batches of 4,000 units per batch. Each batch requires 400 direct labour hours and 1,600 kg of raw materials.Direct labour is projected at a rate of RM20.00 per hour for Quarters 1 and 2 and at RM21.00 thereafter.Raw materials currently cost RM8.00 per kg and are expected to increase by 5% with effect from the start of Quarter 3 in Year 2. The company has agreed an average of 90 days credit with its suppliers.General overheads are projected to be RM50,000 per month. Required:Prepare a quarterly cash budget for the company for Year 2.Discuss the advantages and disadvantages of budgetary control.

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Answered: Required: Prepare a quarterly cash…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 18E: Carmichael Corporation is in the process of preparing next years budget. The pro forma income...

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Salsabella Berhad manufactures and sells an electrical component. The Covid-19 pandemic has affected the company’s operation due to several lockdown in the country. The company is struggling to manage its cash flows. The business’ bank balance at the end of the year is projected to be an overdraft of RM170,000.

As an accountant for Salsabella Berhad, you have prepared the following budgetary information to be presented in a board meeting:

Sales volumes are projected as follows:

Year 1		Year 2
Quarter 4	Quarter 1	Quarter 2	Quarter 3	Quarter 4
100,000 units	100,000 units	80,000 units	60,000 units	140,000 units

The selling price of the component is currently RM11.00 per unit and this is expected to increase to RM12.00 per unit from the start of Quarter 2 in Year 2.
All sales are on credit and customers settle their debts in the Quarter following sale.

Irrecoverable debts of 5% of total sales revenue are anticipated.

The company normally holds inventory of 40,000 units at the end of each Quarter and wants this to continue.
The electrical components are produced in batches of 4,000 units per batch. Each batch requires 400 direct labour hours and 1,600 kg of raw materials.
Direct labour is projected at a rate of RM20.00 per hour for Quarters 1 and 2 and at RM21.00 thereafter.
Raw materials currently cost RM8.00 per kg and are expected to increase by 5% with effect from the start of Quarter 3 in Year 2. The company has agreed an average of 90 days credit with its suppliers.
General overheads are projected to be RM50,000 per month.

Required:

Prepare a quarterly cash budget for the company for Year 2.
Discuss the advantages and disadvantages of budgetary control.

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Required: Prepare a quarterly cash budget for the company for Year 2. Discuss the advantages and disadvantages of budgetary control.