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A budget is a formal written statement of management’s plans for a specified
future time period, expressed in financial terms. It represents the primary
method of communicating agreed-upon objectives throughout the organization.
Once adopted, a budget becomes an important basis in business.” Discuss the
importance of budgeting in a business.

Question 1 (Total: 40 marks)
Kuno Berhad has a branch that manufactures and sells solar panels. Demand for
solar panels has picked up recently and the company is looking to increase its
output. Kuno Berhad branch currently manufactures 600,000 solar panels annually
and is looking to double this capacity. A new plant and machinery has become
available at an annual rent that would cost RM1.8 million, payable immediately on 1
January 2014. This new plant and machinery would have a useful life of 10 years
and would be depreciated on a straight-line basis with no residual value. The
directors of Kuno Berhad are now wondering whether they should go ahead with the
new solar panel factory. They have produced the following projections upon which to
base their forecasts.
Kuno Berhad sells each solar panel for RM150. Demand for the increased output is
expected to be as follows:
Month Units of panels
January 20,000
February 30,000
March 30,000
April 40,000
May 80,000
June 80,000
July 80,000
August 80,000
September 60,000
October 40,000
November 40,000
December 20,000
 It is assumed that production and sales take place in the same month.
 All panels are sold to credit customers 10% of whom pay in the month of sale,
60% in the month after and the remanding 30% two months after the month of
sale.
 Material cost is 30% of the selling price of the panels. Materials suppliers are paid
one month after sales have taken place.
 Production labour is 20% of selling price; 70% of this amount is payable in the
month of production and the remanding is paid one month after production has
taken place.
 Other variable production costs of 10% of selling price are paid in the month of
sales.
Sunway University Business School Sample ACC1024 Final Examination
Page 2 of 8
 Fixed costs are estimated to be RM50,000 per month and are to be paid in the
month in which they are incurred. Kuno Berhad manufactures to order and sells
at its production and has no inventories of solar panels at the end of the year.
Required:
a) Prepare the following statements for the next 4 months, starting January 2014:
(i) A sales budget. (2 marks)
(ii) A production cost budget. (4 marks)
(iii) A cash budget. (14 marks)
b) “A budget is a formal written statement of management’s plans for a specified
future time period, expressed in financial terms. It represents the primary
method of communicating agreed-upon objectives throughout the organization.
Once adopted, a budget becomes an important basis in business.” Discuss the
importance of budgeting in a business.
(15 marks)
c) Despite the advantages of preparing budgets, it is argued that budgets can be
misused. Discuss the possible drawbacks in budgets.
(5 marks)

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The post A budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms. It represents the primary method of communicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes an important basis in business.” Discuss the importance of budgeting in a business. appeared first on nursing paper help .


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