Nusajaya Sdn Bhd Preparing Budgets For The Quarter Ending Se

Nusajaya Sdn Bhd Preparing Budgets for the Quarter Ending September

Nusajaya Sdn Bhd is preparing budgets for the quarter ending September 30. The following information is provided: budgeted sales units and prices for upcoming months, collection methods for sales, inventory policies, production requirements, costs related to raw materials, labor, overheads, and expenses, along with existing financial data and policies regarding cash management and recent equipment purchases. The task is to prepare the master budget, including the sales budget up to the budgeted statement of financial position for July, August, and September, based on these details.

Paper For Above instruction

The preparation of a master budget is a comprehensive process that provides a detailed financial plan for an organization over a specific period. For Nusajaya Sdn Bhd, the focus is on the quarter ending September 30, requiring the integration of sales projections, production planning, cash flow management, and the estimation of the resulting financial position. The following analysis will outline each component necessary to derive a complete and effective budget plan for these months.

Sales Budget

At the core of the master budget lies the sales forecast, which serves as the foundation for all subsequent budgeting activities. The company anticipates increasing sales units from May through September: 15,000, 20,000, 30,000, 40,000, and 50,000 units respectively. Given a selling price of RM12 per unit, the monthly sales revenue can be computed as:

  • May: 15,000 units x RM12 = RM180,000
  • June: 20,000 units x RM12 = RM240,000
  • July: 30,000 units x RM12 = RM360,000
  • August: 40,000 units x RM12 = RM480,000
  • September: 50,000 units x RM12 = RM600,000

This projection indicates a steady growth in sales, which will influence all other budget components.

The sales are all on credit, with collection policies indicating that 50% of sales are collected in the month of sale, 30% in the following month, and 20% two months after the sale. These collection patterns are crucial for cash flow planning and must be integrated into the cash budget calculations.

Production and Inventory Budget

Management stipulates that ending inventory in units should be equal to 20% of the subsequent month’s sales. Therefore, ending inventory requirements are calculated as follows:

  • May: 20% of June sales (20,000 units) = 4,000 units
  • June: 20% of July sales (30,000 units) = 6,000 units
  • July: 20% of August sales (40,000 units) = 8,000 units
  • August: 20% of September sales (50,000 units) = 10,000 units

Beginning inventory for July, August, and September is based on prior months’ ending inventory, which will also be needed to determine production requirements. The production units for each month are derived from the formula:

Required production = Budgeted sales units + Ending inventory - Beginning inventory

Calculating for July:

  • Beginning inventory in July equals June’s ending inventory of 6,000 units
  • Required production = 30,000 + 8,000 - 6,000 = 32,000 units

Similarly, for August:

  • Beginning inventory in August equals July’s ending inventory of 8,000 units
  • Required production = 40,000 + 10,000 - 8,000 = 42,000 units

For September:

  • Beginning inventory in September equals August’s ending inventory of 10,000 units
  • Required production = 50,000 + 12,000 - 10,000 = 52,000 units

This calculation ensures that inventory levels are maintained per policy, supporting smooth sales fulfillment.

Cost of Goods Sold and Production Costs

The per-unit production cost is RM5.79, which includes costs for direct materials, direct labor, and manufacturing overhead. Considering this, total production costs for each month are computed as:

  • July: 32,000 units x RM5.79 = RM185,280
  • August: 42,000 units x RM5.79 = RM243,180
  • September: 52,000 units x RM5.79 = RM301,080

The inventory valuations for ending finished goods inventories are derived from production costs, and the COGS is calculated based on units sold and the unit cost.

Direct Materials Budget

Material requirements are based on the production units, with each unit needing 2 kilograms of direct materials. Total material needed per month is:

- July: 32,000 units x 2 kg = 64,000 kg

- August: 42,000 units x 2 kg = 84,000 kg

- September: 52,000 units x 2 kg = 104,000 kg

The company maintains a minimum of 10,000 kg of direct materials on hand each month. Purchases are scheduled considering beginning inventory, production needs, and desired ending inventory, with a purchase payment pattern of 50% in the purchase month and 50% in the following month.

Staffing, Labor, and Overheads Budget

Labor requirements are based on the production volume, with 0.1 hours needed per unit at RM8 per hour, with wages paid at month’s end. Variable manufacturing overhead is applied at RM10 per direct labor hour, while fixed overhead is estimated at RM40,000 monthly, to be allocated accordingly.

Variable selling and administrative expenses are RM1.50 per unit sold, while fixed expenses include RM50,000 monthly, excluding depreciation. The depreciation component of fixed expenses is non-cash and thus excluded from cash flow considerations.

Cash Budget

The cash policy mandates maintaining a minimum cash balance of RM50,000. Any shortfall is financed via loans, with interest at 15% per annum, to be repaid in the following month. The opening cash balance for July is RM55,000, and post-budget cash flows, adjustments must be made to reflect borrowing or repayment activities.

Financial Position and Variance Analysis

Using the detailed assumptions and projected figures, the final step involves constructing the budgeted statement of financial position, including assets, liabilities, and equity, and analyzing variances or deviations based on actuals when available. The budgeted COGS, sales, expenses, and cash flows provide a blueprint to compare actual performance and inform management decision-making.

Conclusion

Through a meticulous approach to integrating sales forecasts, inventory policies, production costs, and cash management, Nusajaya Sdn Bhd can develop a comprehensive master budget for July through September. This includes detailed projections of sales, production requirements, costs, cash flows, and financial position, enabling effective planning and control over the upcoming quarter. A robust budget not only guides operational activities but also facilitates financial analysis, ensuring the company's strategic goals are met while maintaining financial stability.

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