Assignment Question: Managerial Accounting(30%)
Budgets & Budgetory Controls You are the accountant for Sepang Bikes, a manufacturer of sturdy mountain bikes for intermediate level bikers. The entity’s managers are forecasting an increase in the sales because of the success of their current advertising campaign. They asked you to create a
master budget for the upcoming year, given the forecasted sales increase.
To gather information needed for the budget, you first access relevant data about revenues,
inventories and production costs from last period’s accounting records. Next, you obtain
information from every department and meet with top management to identify changes in
sales volumes and prices, production processes, manufacturing costs and support department
costs. The following are information you have gathered:
1) The managers forecasted that 100,000 bikes would be sold at a price of RM800 each.
2) According to the prior accounting records, beginning finished goods inventory
consists of 2,500 bikes at a cost per unit of RM454.75, or RM1,136,875 in total.
Given the anticipated increase in sales volume, the managers want to increase finished
goods inventory to 3,500 units.
3) Direct materials beginning inventory consists of:
Wheels and tyres
RM
20,000
Components
70,000
Frames
50,000
Total
140,000 4) The cost per unit of direct materials is expected to be:
Wheels and tyres
RM
20
1 Components
Frames 70
50 5) The managers want ending inventories to be:
Wheels and tyres
RM
25,000
Components
87,500
Frames
62,500
Total
175,000
6) The quantity and cost of direct labour per unit is expected to be:
Direct labour
Hours
Cost per hour
Assembly
1.5
RM25
Testing
0.15
RM15
7) For overheads, you use information that you collected from last year’s operations and
update it with current prices. The cost per unit of variable manufacturing overhead is
expected to be as follows:
Variable overhead (cost per unit):
Supplies
RM20.00
Indirect labour
RM37.50
Maintenance
RM10.00
Miscellaneous
RM 7.50
Total
RM75.00
8) You expect a total of RM20,200,000 to be spent on fixed manufacturing overhead
costs as follows: Depreciation: RM4,040,000; Property taxes: RM1,010,000;
Insurance: RM1,414,000; Plant supervision: RM5,050,000; Fringe benefits:
RM7,070,000; Miscellaneous: RM1,616,000. Overheads are absorbed by budgeted
volume of production.
9) You also estimate other operating costs for all the support departments. All support
costs for Sepang Bikes happen to be fixed as follows: Administration: RM16,478,215;
Marketing: RM9,886,929; Distribution: RM4,943,465; Customer service:
RM1,647,821.
10) Income taxes are expected to be at the rate of 30%. Required:
(a) Describe and discuss ONE (1) strategic tool / technique / process that has elevated and
changed the role of management accounting in facing the challenging business environment
over the recent decades.
(10
marks)
2 (b) As the accountant at Sepang Bikes, develop a master budget for the review of the entity’s
controller, so that it can then be presented at a meeting with the CEO and the various
department heads. Create individual /functional budgets in the following order:
(20
marks)
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix. Sales revenue budget
Production budget
Direct materials usage and purchases budget
Direct labour budget
Manufacturing overhead budget
Ending inventories budget
Cost of goods sold budget
Support department budget
Budgeted statement of profit or loss 3