Question

Question 1 Dudley Manufacturing is preparing its master budget for the first month of the upcoming year. The following data pertain to ar East Manufacturing's operations: • Account Balances as at December 31(prior year): Cash RM4,500 Account Receivable, net RM50,000 Inventory RM15,000 Account Payable RM42,400 Actual sales in December were RM70,000. Selling price per unit is projected to remain stable at RM10 per unit throughout the budget period. Sales for the first two months of the upcoming year are budgeted to be as follows: January RM83.000 February RM92,000 Sales are 30% cash and 70% credit. All credit sales are collected in the month following the sale. Far East Manufacturing has a policy that states that each month's ending inventory of finished goods should be 25% of the following month's sales in units). . Of each month's direct material purchase, 10% are paid for in the month of purchase, while the remainder is paid for in the month following purchase. Two pounds of direct material is needed per unit at RM2 per pound. Ending inventory of direct materials should be 10% of next month's production needs. Most of the labor at the manufacturing facility is indirect, but there is some direct labor incurred. The direct labor hour per unit is 0.02. The direct labor rate per hour is RM10 per hour. All direct labor is paid for in the month in which the work is performed Monthly manufacturing overhead costs are RM8,000 and RM1.20 per unit produced for variable manufacturing overhead. Depreciation is included in these figures. All expenses are paid in the month in which they are incurred. Depreciation on the factory equipment and building is budgeted to be RM600 per month. Computer equipment for the administrative offices will be purchased in the upcoming month. In January, Far East Manufacturing will purchase equipment for RM6,200 (cash). Operating expenses are budgeted to be RMI per unit sold plus fixed operating expenses of RM2,000 per month. All operating expenses are paid in the month in which they are incurred. Depreciation is excluded in these figures Depreciation on the building and equipment for the general and administrative offices is budgeted to be RM500 per month, which includes depreciation on new acquisitions.

Answer 1

a. Cash collection for January

Particulars	Cash collected
Cash Sales (RM 83,000 * 30%)	RM 24,900
Credit Sales* (RM 70,000 * 70%)	RM 49,000
Total	RM 73,900

*Credit sales for December will be collected in January = RM 70,000 * 70% = RM 49,000

b. Production budget for January

Particulars	Units
Unit Sales (RM 83,000 / RM 10)	8,300
Plus: Desired Ending Inventory	2,300*
Total Needed	10,600
Less: Beginning Inventory	2,075**
Number of Units to Produce	8,525

*Calculation of ending inventory

Sales in February = RM 92,000

Selling price per unit = RM 10

Number of units to be sold = RM 92,000 / RM 10 = 9,200

Ending inventory = 25% of Sales in next month

Ending inventory in January = 9,200 * 25% = 2,300

**Calculation of beginning inventory

Ending inventory of December = Opening inventory of January

Ending inventory of December = 25% of Sales in January

Ending inventory of December = 8,300 * 25% = 2,075

c. Direct materials purchase budget

Units to be produced (from Production Budget)	8,525
Quantity (pounds) of DM needed per unit	2
Quantity needed for production (8,525 * 2)	17,050
Plus: Desired ending inventory of DM* (18,600 * 10%)	1,860
Total quantity (pounds) needed	18,910
Less: Beginning inventory of DM**	1,705
Quantity (pounds) to purchase	17,205
Cost per pound	RM 2
Total Cost of DM purchases (17,205 * RM 2)	RM 34,410

*Calculation of desired ending inventory of DM

Desired ending inventory of DM = 10% of production needs of February (as shown below)

Unit Sales	9,200
Plus: Desired Ending Inventory (see note)	2,400
Total Needed	11,600
Less: Beginning Inventory	2,300
Number of Units to Produce	9,300
Quantity of DM needed per unit	2
Quantity needed for production (9,300 * 2)	18,600

Note: Since sales of March are not given, I have assumed it to be RM 96,000. Hence the number of units sold will be 9,600 (RM 96,000 / RM 10). Accordingly desired ending inventory for February will be 2,400 (9,600 * 25%).

**Beginning inventory of DM

Beginning inventory of DM for January= Ending inventory of DM of December

Ending inventory of DM of December = 10% of production needs of January

= 17,050 * 10% = 1,705

d. Schedule of cash disbursements for January

December Purchases (Accounts Payable)	RM 42,400
January Purchases (RM 34,410 * 10%)	RM 3,441
Cost of Labor (8,525 units * 0.02 hour * RM 10)	RM 1,705
Variable Manufacturing Overhead (8,525 units * RM 1.20)	RM 10,230
Fixed Manufacturing OH less Depreciation (RM 8,000 - RM 600 - RM 500)	RM 6,900
Variable Operating Expenses (8,300 units sold * RM 1)	RM 8,300
Fixed Operating Expenses (given)	RM 2,000
Purchase of Machinery (given)	RM 6,200
Total Cash Disbursements	RM 81,176

Note: As per HOMEWORKLIB POLICY in case of multiple sub-questions, only the first four need to be answered.