Question

Mr. Raju just appointed as an account manager at NH Sdn Bhd, a retail company selling merchandises for local market. Mr. Raju is being responsible to prepare and monitor the budget and expenses of the company business. Currently the company is preparing the quarterly budget as of 31 December 2020 and he has been asked by Ms. Sally, the owner of the company, to prepare a master budget. The sales forecast for the merchandises are provided as follows:

Unit sales
August 2020	1,500 actual
September 2020	1,600 actual
October 2020	1,700 budgeted
November 2020	2,300 budgeted
December 2020	2,400 budgeted
January 2021	1,300 budgeted

The average selling price and the average purchase price per unit are RM250 and RM120 respectively. As for desired ending inventory is expected 30% of next month’s unit sales. Collections from customers will be 20% in month of sale, 50% in month after sale and 30% two months after sale.

As for projected cash payments, inventory purchases will be paid in the month following acquisition. Meanwhile, variable cash expenses are equal to 35% of each month’s sales and paid in the month of sale. Fixed cash expenses are RM20,000 per month and are paid in the month incurred. Depreciation on equipment is RM2,000 per month. Desired ending cash balance per month will be RM20,000.

NH Sdn Bhd also has provided the following information at 30 September 2020

Balance Sheet as at 30 September 2020

RM
Cash	30,000
Account Receivable	245,000
Merchandise inventory(650 unit)	78,000
Fixed Assets (net)	110,000
Total assets	463,800
Account Payable(Merchandise)	148,800
Owner’s Equity	315,000
Total liability and equity	463,800

Required:

Based on the information given, you are required to prepare the following budget** for the upcoming quarter ending 31 December 2020.

1. Sales Budget for each month of the quarter;
2. Purchases Budget for each month of the quarter;
3. Cash Budget for each month of the quarter;
4. Budgeted Income Statement; Quarter
5. Budgeted Balance Sheet.

Answer 1

a.

NH Sdn Bhd
Sales Budget	October	November	December	Total	Note
Units sold	1,700.00	2,300.00	2,400.00	6,400.00	A
Sell price	250.00	250.00	250.00		B
Sales Budget ($)	425,000.00	575,000.00	600,000.00	1,600,000.00	C=A*B

 

b.

Material Purchase Budget	October	November	December	Total	January	Note
Budgeted sales units	1,700.00	2,300.00	2,400.00	6,400.00	1,300.00	See A
Add: Closing	690.00	720.00	390.00	390.00		D= 30% of A of next month.
Less: Opening	650.00	690.00	720.00	650.00		E= 30% of A of same month. For October its inventory of 30th September.
Material Purchase Budget	1,740.00	2,330.00	2,070.00	6,140.00		F
Purchase price	120.00	120.00	120.00			G
Material Purchase Budget ($)	208,800.00	279,600.00	248,400.00	736,800.00		H=F*G

 

c.

Workings for cash budget
Collection Budget	October	November	December	Total
Budgeted Sales Revenue	425,000.00	575,000.00	600,000.00	1,600,000.00
20% of sales in the same month	85,000.00	115,000.00	120,000.00	320,000.00
50% of sales in the next month	245,000.00	212,500.00	287,500.00	745,000.00
30% of sales in the second month	-	-	127,500.00	127,500.00
Total Scheduled Collections	330,000.00	327,500.00	535,000.00	1,192,500.00

Note I: Accounts Receivable	Amount $
30% of November	172,500.00
80% of December	480,000.00
Accounts Receivable for 2020	652,500.00

Cash disbursement for materials	October	November	December	Total
Material Purchase Budget ($)	208,800.00	279,600.00	248,400.00	736,800.00
100% paid in next month	148,800.00	208,800.00	279,600.00	637,200.00
Cash disbursement for materials	148,800.00	208,800.00	279,600.00	637,200.00

Note J: Accounts payable	Amount $
100% of purchases of December	248,400.00

 

d.

Cash budget	October	November	December	Total
Beginning Cash Balance	30,000.00	42,450.00	20,000.00	30,000.00
Plus: Collections	330,000.00	327,500.00	535,000.00	1,192,500.00
Cash Available	360,000.00	369,950.00	555,000.00	1,222,500.00
Disbursements
Material Payment	148,800.00	208,800.00	279,600.00	637,200.00
Variable cash expenses	148,750.00	201,250.00	210,000.00	560,000.00
Fixed cash expenses	20,000.00	20,000.00	20,000.00	60,000.00
Total cash payments	317,550.00	430,050.00	509,600.00	1,257,200.00
Ending cash balance before financing	42,450.00	(60,100.00)	45,400.00	(34,700.00)
Financing
Borrowings	-	80,100.00	-	80,100.00
Repayments	-	-	(25,400.00)	(25,400.00)
Interest paid	-	-	-	-
Total effects of financing	-	80,100.00	(25,400.00)	54,700.00
Ending cash balance	42,450.00	20,000.00	20,000.00	20,000.00
Income Statement	October	November	December	Oct- Dec
Sales	425,000.00	575,000.00	600,000.00	1,600,000.00
Less: Cost of merchandise sold	204,000.00	276,000.00	288,000.00	768,000.00
Gross Margin	221,000.00	299,000.00	312,000.00	832,000.00
Less: Operating expenses
Variable cash expenses	148,750.00	201,250.00	210,000.00	560,000.00
Fixed cash expenses	20,000.00	20,000.00	20,000.00	60,000.00
Depreciation	2,000.00	2,000.00	2,000.00	6,000.00
Total Operating expenses	170,750.00	223,250.00	232,000.00	626,000.00
Income from operations	50,250.00	75,750.00	80,000.00	206,000.00
Less: Interest Expense	-	-	-	-
Net Income before taxes	50,250.00	75,750.00	80,000.00	206,000.00
Less: Income tax	-	-	-	-
Net Income	50,250.00	75,750.00	80,000.00	206,000.00

 

Note K - Fixed assets (net) as on 31st Dec	Amount $
Fixed assets (net) as on 30th September	110,800.00
Less: Depreciation for October	(2,000.00)
Less: Depreciation for November	(2,000.00)
Less: Depreciation for December	(2,000.00)
Fixed assets (net) as on 31st Dec	104,800.00
Note L - Statement of Equity	Amount $
Opening Balance	315,000.00
Add: Net Income for 3 months	206,000.00
Less: Withdrawals	-
Closing Balance	521,000.00

 

e.

 

a. 

NH Sdn Bhd
Sales Budget	October	November	December	Total	Note
Units sold	1,700.00	2,300.00	2,400.00	6,400.00	A