SBS 2025 Master Budget Accounting and Finance Assignment

SBS 2025 Master Budget

SBS, the maker of industrial liquidating agents, is preparing the budget for 2025. The sales department has indicated an annual sale of 55,000 units and the selling price to be set at RM155 per unit. The selling price of the product in 2023 was RM100.

The sales department has estimated that the bulk of the sales will be in the 1st and 3rd quarters of the year. For the 1st quarter, sales will be 30% of the annual sales, the 2nd quarter sales forecast is 10%, the 3rd quarter sales will be 40%, while the remaining sales will be in the 4th Quarter. In the first quarter, the company expects customers to pay 70% of their purchase within the first quarter, and the balance sales will be collected in the 2nd quarter. In the 2nd and 3rd quarters, the collection from sales is 90% within each quarter. In the 4th quarter, however, the collection from sales within that quarter is 60%.

The company intends to have an inventory of finished products of 5,000 units at the end of the budget year. Each quarter will also require an ending finished inventory in order not to be in a situation of a stockout. The ending inventory of each quarter will be 8% of the next quarter’s unit sales.

Each product requires 4kg of raw materials and 5 hours of labour time to complete. The raw materials will cost RM12 per kg, and workers are paid RM7 per hour. The company will pay 70% of the raw materials purchased in the same quarter of the year and the balance 30% in the next quarter. In 2024, the cost of the raw materials was RM10 per kg.

The production department intends to have 1,500 kg of raw materials at the end of the budget year. Each quarter will also require an ending inventory as a precaution against any shortages in the supply of raw materials. The ending inventory of each quarter will be 5% of the next quarter’s raw materials.

The production requires variable overheads that are set based on direct labour hours. The predetermined rate is RM2.50 per direct labour hour.

Other Non-Manufacturing Expenses Annually Are As Follows:-

• Advertising RM 100,000
• Salaries RM 450,000
• Office Expenses RM 30,000
• Depreciation for office equipment is RM 40,000
• The rent on the administration building is RM 60,000

Additional information: –

• The company will be paying the 2024 tax payable in the 1st Quarter of 2025
• Equipment will be purchased in the 4th Quarter at a cost of RM 65,000.
• The company intends to take a long-term loan of RM50,000 to purchase the equipment.
• Principal payment to reduce the Non-Current Liabilities will be made at every quarter. The amount is RM12,500 every quarter. The interest payment of RM12,000 will also be paid every quarter.
• The interest rate for any short-term loans will be 8%, and the loan must be settled within the same year that it is made. Any extension of payment will need further negotiation with the bank and will be treated as a long-term loan.
• It was suggested that the dividend amount would be RM760,000 and would be paid in the fourth Quarter.
• The number of ordinary shares is 1 million units. In 2024, the average share price is RM1.20. The average industry PE ratio is 6 times.
• The weighted average cost of capital for the company is 10%.

Required:

• Prepare a complete Master Budget for 2025. This will include all Quarterly budgets in the Manufacturing Budget, the Quarterly Cash Budget,
• Annual Proforma Income Statement and Annual Proforma Balance Sheet.
• Prepare a performance analysis on the budget, which includes financial ratio analysis, economic value-added analysis, and market value analysis, between 2024 and the budget. Comment and provide suggestions