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Importance of Accounting |Business Decisions Making

408 Downloads1 I Published: 26 Oct ,2019

Introduction

In the tough age of competition in corporate world, companies are require to prepare the best financial plans, policies and regulations so as to manage their funds and meet monetary commitments timely. Now-a-days, corporations strive to reach their financial goals through preparing a number of budgets and integrate it through preparing a master budget. It enable business to forecast or predict the result of future course of action and operations so that, rational and smart decisions can be made on right time. Here, the report will emphasize on creation of a master budget taking into account forecasting like sales budget, purchase budget, production budget, material & direct labor budget and many others to make the best and viable financial plan for Nusajaya Sdn. Bhd.

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Master Budget

Master budget comprises a set of budgets at various functional level, like, production, marketing, selling & administration, manufacturing & many others and accumulates or aggregate these all to forecast the future performance (Horngren and et.al., 2013). As per the scenario, Nusajaya Sdn. Bhd is planning to prepare budgets for the quarter ending on September 30 to anticipate or target their future year’s performance, hence, various budgets are prepared here as under:

Sales Budget

This budget is used to predict the quantity of sales & total turnover that will be generated from the delivery of goods & services by Nusajaya Sdn. Bhd (DRURY, 2013).

Table 1Sales budget

Sales budget

May

June

July

August

September

October

November

Selling units

15000

20000

30000

40000

50000

35000

25000

Sales price

12

12

12

12

12

12

12

Total sales

180000

240000

360000

480000

600000

420000

300000

Production budget

The main aim of making production budget is to determine the number of units that Nusajaya Sdn. Bhd’s production department will be require to manufacture to satisfy their market demand (Bebbington, Unerman and O'Dwyer, 2014).

Table 2Production budget

Production budget

July

August

September

Budgeted sales units

30000

40000

50000

Add: Closing inventory items (20%)

8000

10000

7000

Less: Beginning inventory items

6000

8000

10000

Planned production in units

32000

42000

47000

Material purchase budget

In manufacturing concern, companies require buying material for the production of good & services, therefore, they prepare material purchase budget to determine the quantity of goods & its total funding requirement for the material purchase (McGraw, Freeman and et.al., 2014).

Table 3Material purchase budget

Material purchase budget

July

August

September

Budgeted production in units

32000

42000

47000

* Material requirement each unit (kilogram)

2

2

2

Direct material required for the production (Kilogram)

64000

84000

94000

Add: Closing inventory

10000

10000

10000

Less: Opening inventory

10000

10000

10000

Budgeted direct material required to be purchase (Kg)

64000

84000

94000

Cost per kg

1.5

1.5

1.5

Budgeted DM purchase (In RM)

96000

126000

141000

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Cash inflow from consumers

Here, Nusajaya Sdn. Bhd’s sales policy indicates that 50% of the sales will be receive in the same month, whereas 30% in the next month & 20% in the next second following month. Therefore, the expected cash that Nusajaya will obtain from the sales of its offerings is computed here as under:

Table 4Cash inflow from consumers

Schedule of expected cash receipts from the consumers

May

June

July

August

September

October

November

Total

50% collection in the same month

90000

120000

180000

240000

300000

210000

150000

1290000

30% collection in the following month

 

54000

72000

108000

144000

180000

126000

684000

20% collection in the two month after sale

   

36000

48000

72000

96000

120000

372000

Total cash inflow

90000

174000

288000

396000

516000

486000

396000

2346000

Expected cash payment to suppliers

Nusajaya Sdn. Bhd. decided to pay 50% in the same month in which material has been purchased and remaining 50% will be paid in the next month.

Table 5Cash payment to suppliers

Cash payment to suppliers

July

August

September

50% payment in the month of purchase

48000

63000

70500

50% in the following month

33000

48000

63000

Total cash payment for material

81000

111000

133500

Direct labor budget

Nusajaya will be require to recruit labor for transforming their raw material into finished goods, therefore, they will be require to pay wages to them, it can be computed through preparing direct labor budget (Fatoki, 2014), illustrated here as under:

Table 6Direct labor budget

Direct labor budget

July

August

September

Planned production in units

32000

42000

47000

*Direct labor hour each unit

0.1

0.1

0.1

Budgeted direct labor hours

3200

4200

4700

*Cost per hour

8

8

8

Budgeted direct labor hour cost

25600

33600

37600

Manufacturing overhead budget

This budget gives information only about those variable and fixed overheads that are directly related to the production function, prepared below:

Table 7manufacturing overhead budget

Manufacturing overhead budget

July

August

September

Total

Planned production in units

32000

42000

47000

121000

*Direct labor hour each unit

0.1

0.1

0.1

0.1

Budgeted DLH

3200

4200

4700

12100

*Variable overheads rate each hour

10

10

10

10

Variable manufacturing overheads

32000

42000

47000

121000

Fixed manufacturing overheads

40000

40000

40000

120000

Cash disbursement of manufacturing overheads

72000

82000

87000

241000

Manufacturing overhead cost per hour

     

19.92

Selling and administrativeoverhead budget

This budget is used to prepare the total amount that Nusajaya will spend on their selling & administration expenditures like advertisement, sales promotion & many others, prepared here as under:

Table 8Selling and administrative overhead budget

Selling and administrative expense budget

July

August

September

Total

Selling units

30000

40000

50000

120000

Variable cost each unit

1.5

1.5

1.5

1.5

Variable selling & administrative expense

45000

60000

75000

180000

Fixed S&A expense

50000

50000

50000

150000

Total S&A

95000

110000

125000

330000

Less: Non-cash expense (Depreciation)

5000

5000

5000

15000

Cash S&A expense

90000

105000

120000

315000

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Ending finished stock inventory budget

Table 9Ending finished stock inventory budget

Ending Finished Stock inventory budget

Requirement per unit

Price per unit

Total

Direct Material

2

1.5

3

Direct labor

0.1

8

0.8

Manufacturing overheads

0.1

19.92

1.99

     

5.79

Ending inventory

   

7000

Ending finished goods inventory

   

40542.15

Cash budget

It is the most important budget which accumulates the forecasted cash incoming or expenditures for the future period and targeted at determining the net cash either surplus or deficit (Hamza, Mutala and Antwi, 2015), prepared below:

Table 10Cash budget

Particulars

July

August

September

Opening cash balance

55000

74400

50000

Cash inflow

288000

396000

516000

Total

343000

470400

566000

Cash outflow

     

Payment to suppliers

81000

111000

133500

Wages payment

25600

33600

37600

Manufacturing overheads

72000

82000

87000

Sales & administration expenses

90000

105000

120000

Equipment purchase

-

150000

-

Total cash disbursement

268600

481600

378100

Excess(deficiency)

74400

-11200

187900

Financing:

     

Borrowing

 

61200

 

Repayment

   

61200

Interest @ 15% per annum

   

765

Total financing

     

Ending cash balance

74400

50000

125935

Budgeted income statement

Table 11Budgeted income statement

Budgeted income statement

Sales

1440000

Less: Cost of goods sold

694800.00

Gross margin

745200.00

Less: selling & administrative overheads

330000

Operating income

415200.00

Interest expense

765

Net income

414435.00

Budgeted statement of financial position

Table 12Budgeted statement of financial position

Budgeted balance sheet

 

Current assets

 

cash

125935

Accounts receivables

276000

Raw material inventory

15000

Finished goods inventory

40542.15

Total current assets

457477.15

Non-current assets

 

Property

458047.5

Equipment

150200

Add; Purchase in August

150000

Total non-current assets

300200

   

Total assets

758247.50

Current liabilities

1215724.65

Accounts payable

70500

Common stock

500000

Add; Retained earnings

335777.5

Add: Profitability

414435.00

Total liabilities & equity

1320712.50

Conclusion

Report concluded that as per the budgeted plan, Nusajaya Sdn. Bhd.will have a quarterly return of 414,435 at the end of September. However, in the August, it will have cash deficit worth 11,200 therefore, it will have to take a loan of 61,200 top maintain a minimum cash balance of 50000 that will be repaid in next month at an annual interest of 15% p.a. to 765. Therefore, company can be suggested to control it spending and maximize their cash revenues through modifying the credit policy so as to get prompt and quick receipts from the debtors to maintain enough cash.

Reference

Books and Journals

  • Bebbington, J., Unerman, J. and O'Dwyer, B., 2014. Sustainability accounting and accountability. Routledge.
  • DRURY, C.M., 2013. Management and cost accounting. Springer.
  • Fatoki, O., 2014. Working capital management practices of immigrant entrepreneurs in South Africa. Mediterranean Journal of Social Sciences. 5(10). p.52.
  • Hamza, K., Mutala, Z. and Antwi, S.K., 2015. Cash Management Practices And Financial Performance Of Small And Medium Enterprises (SMEs) In The Northern Region Of Ghana.International Journal of Economics, Commerce and Management.
  • Horngren, C.T.,and et.al.,2013.Introduction to management accounting. Pearson Higher Ed.
  • Krachler, N. and Greer, I., 2015. When does marketisation lead to privatisation? Profit-making in English health services after the 2012 Health and Social Care Act.Social Science & Medicine. 124. pp.215-223.
  • McGraw Hill.Freeman, R.J.,and et.al., 2014. Governmental and nonprofit accounting: Theory and practice.JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER. 3(2). p.441.
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