Convincing Features
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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%, 3rd Quarters 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. 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 stock out. 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 labor 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 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 labor hours. The predetermined rate is RM2.50 per direct labor hour.
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