Question 1: ABC Manufacturing Ltd.
Company Background:
ABC Manufacturing Ltd. produces and sells a product with seasonal demand. The company is preparing
its master budget for the upcoming year (20X4) based on the following financial and operational data.
Given Data:
Selling Price per Unit: Br. 25
Estimated Sales (units per quarter):
o Q1: 12,000
o Q2: 18,000
o Q3: 25,000
o Q4: 15,000
Sales Collection Policy:
o 60% collected in the same quarter
o 40% collected in the next quarter
Finished Goods Inventory Policy:
o Ending inventory = 25% of the next quarter’s sales
Raw Material Requirements:
o Each unit requires 10 pounds
o Cost per pound: Br. 0.30
o Ending raw material inventory = 10% of next quarter’s production needs
Direct Labor:
o 0.5 hours per unit
o Br. 8 per hour
Manufacturing Overhead:
o Variable Overhead: Br. 3 per labor hour
o Fixed Overhead: Br. 50,000 per quarter (includes Br. 12,000 depreciation)
Selling & Admin Expenses:
o Fixed:
Q1: Br. 60,000
Q2: Br. 65,000
Q3: Br. 80,000
Q4: Br. 75,000
o Variable: Br. 2 per unit
Raw Material Purchases Payment:
o 40% paid in the same quarter
o 60% paid in the next quarter
Beginning Balances:
o Accounts receivable: Br. 75,000
o Raw material inventory: 15,000 pounds
o Finished goods inventory: 3,000 units
Minimum Cash Balance Requirement: Br. 30,000
Loan Borrowing Rate: 12% annually
PREPARATION OF MASTER BUDGET (Manufacturing Company)
Example 1, Great Company manufactures and sells a product whose peak sales occur in the third
quarter. Management is now preparing detailed budgets for 20x4- the coming year and has
assembled the following information to assist in the budget preparation:
The company’s product selling price is Br. 20 per unit. The marketing department has estimated
sales in units as follows for the next six quarters
20x4 Quarters 20x5 Quarters
Quarter 1 10000 15000
Quarter 2 30000 15000
Quarter 3 40000
Quarter 4 20000
A. 70% of sales are collected in the quarter in which the sales are made and the remaining 30%
are collected in the following quarter. On January1, 20x4, the company’s balance sheet
showed Br.90, 000 in account receivable, all of which will be collected in the first quarter of
the year.
B. The company maintains an ending inventory of finished units equal to 20% of the next
quarter’s sales. The requirement was met on December 31, 20x3, in that the company had 2,
000 units on hand to start the New Year.
C. Fifteen (15) pounds of raw materials are needed to complete one unit of product. ending
inventory of raw materials on hand at the end of each quarter equal to 10% of the following
quarter’s production needs of raw materials. The company had 21, 000 pounds of raw
materials to start the New Year. The raw material costs Br.0.20 per pound.
D. Raw material purchases are paid for in the following pattern: 50% paid in the quarter the
purchases are made, and the remainder is paid in the following quarter. On January 1,20x4,
the company’s balance sheet showed Br.25, 800 in accounts payable for raw material
purchases, all of which be paid for in the first quarter of the year.
E. Each unit of Great’s product requires 0.8 hour of labor time. Estimated direct labor cost per
hour is Br.7.50.
F. Variable overhead is allocated to production using labor hours and the allocation rate is 2 per
hour. Fixed overhead for each quarter was budgeted at Br. 60, 600. Of the fixed overhead
amount, Br. 15, 000 each quarter is depreciation.
G. The company’s quarterly budgeted fixed selling and administrative expenses including
depreciation with amount of 10,000 are as follows:
20X4 Quarters
1 2 3 4
Fixed selling and
admin expense 85000 86900 122750 103150
The only variable selling and administrative expense, sales commission, is budgeted at Br.1.80
per unit of the budgeted sales. All selling and administrative expenses are paid during the
quarter, in cash, with exception of depreciation.
H. New equipment purchases will be made during each quarter of the budget year
For Br. 50, 000, Br. 40, 000, 20,000& Br.20, 000 each quarter in cash, respectively. The
company declares and pays dividends of Br.8, 000 cash each quarter. The company’s balance
sheet at December 31, 20x3 is presented below:
ASSETS
Current assets:
Cash Br. 42, 500
Accounts Receivable 90, 000
Raw Materials Inventory (21, 000 pounds) 4, 200
Finished Goods Inventory (2, 000 units) 26, 000
Total current assets Br.162, 700
Plant and Equipment:
Land Br.80, 000
Building and Equipment 700, 000
Accumulated Depreciation (292, 000)
Plant and Equipment, net 488, 000
Total assets Br.650, 700
LIABILTIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (raw materials) Br.25, 800
Stockholders’ equity:
Common stock, no par Br.175, 000
Retained earnings 449, 900
Total stockholders’ equity 624, 900
Total liabilities and stockholders’ equity Br.650, 700
The company can borrow money from its bank at 10% annual interest. All borrowing must be
done at the beginning of a quarter, and repayments must be made at the end of a quarter. All
borrowings and all repayments are in multiples of Br. 1,000.
The company requires a minimum cash balance of Br.40, 000 at the end of each quarter. Interest
is computed and paid on the principal being repaid only at the time of repayment of principal.
The company wishes to use any excess cash to pay loans off as rapidly as possible.
Question 1: Supreme Electronics Ltd.
Background Information
Supreme Electronics Ltd. manufactures and sells smart home security devices. The company
expects seasonal sales with peak demand in the second quarter. The management is preparing a
master budget for 2025 and has collected the following data:
Sales Forecast (Units & Revenue)
Selling price: Br. 250 per unit
Estimated unit sales:
Quarter 2025 Sales (Units)
Q1 12,000
Q2 25,000
Q3 18,000
Q4 10,000
80% of sales are collected in the quarter of sale, and the remaining 20% in the following
quarter. The company has Br. 500,000 in accounts receivable from the previous year,
which will be collected in Q1.
Production Requirements
The company maintains an ending inventory equal to 30% of the next quarter’s sales.
Beginning finished goods inventory: 3,600 units (as of Jan 1, 2025).
Raw Material Requirements
Each unit requires 2 kg of aluminum.
The company maintains an ending raw material inventory equal to 20% of the next
quarter’s production needs.
The cost of raw materials is Br. 50 per kg.
Labor and Overhead
Each unit requires 1.2 hours of labor.
The direct labor cost is Br. 90 per hour.
Variable overhead: Br. 15 per labor hour.
Fixed overhead: Br. 200,000 per quarter, including Br. 50,000 depreciation.
Operating Expenses
Fixed selling & admin expenses: Br. 120,000 per quarter.
Variable selling & admin expense: Br. 10 per unit sold.
Cash Management
Minimum cash balance: Br. 100,000.
The company can borrow in multiples of Br. 10,000 at an 8% annual interest rate.
Equipment purchases: Br. 80,000 (Q2), Br. 50,000 (Q3), and Br. 100,000 (Q4).
Question 2: Green Energy Solutions Plc.
Background Information
Green Energy Solutions Plc. manufactures solar panels. The company experiences high demand
in the summer (Q3). The management is preparing a master budget for 2026 and has collected
the following data:
Sales Forecast
Selling price: Br. 500 per unit
Sales estimates:
Quarter 2026 Sales (Units)
Q1 5,000
Q2 8,000
Q3 15,000
Q4 6,000
75% of sales are collected in the same quarter, 25% in the following quarter.
Accounts receivable from the previous year: Br. 800,000 (to be collected in Q1).
Production & Inventory Policy
Ending inventory = 25% of next quarter’s sales.
Beginning inventory: 1,500 units.
Raw Materials & Costs
Each unit requires 5 kg of silicon, costing Br. 120 per kg.
Ending raw material inventory = 15% of next quarter’s production needs.
Labor and Overhead
Each unit requires 2 hours of labor at Br. 100 per hour.
Variable overhead: Br. 25 per labor hour.
Fixed overhead: Br. 300,000 per quarter, including Br. 80,000 depreciation.
Operating Expenses
Fixed selling & admin expenses: Br. 150,000 per quarter.
Variable selling & admin expense: Br. 15 per unit sold.
Financing & Investments
Minimum cash balance: Br. 200,000.
Equipment purchases: Br. 200,000 in Q3.
Borrowing available at 12% annual interest rate.
Question 3: Royal Textiles Plc.
Background Information
Royal Textiles Plc. produces high-quality cotton fabrics. The company’s peak season is Q4 due
to holiday demand.
Sales Forecast
Selling price: Br. 100 per meter.
Estimated sales:
Quarter 2027 Sales (Meters)
Q1 30,000
Q2 35,000
Q3 50,000
Q4 80,000
60% of sales are collected in the quarter of sale, 40% in the next quarter.
Production & Inventory Policy
Ending inventory = 10% of next quarter’s sales.
Beginning inventory: 3,000 meters.
Material & Labor Requirements
Each meter requires 2 kg of cotton, costing Br. 15 per kg.
Ending raw material inventory = 20% of next quarter’s production needs.
Direct labor: 1.5 hours per meter at Br. 80 per hour.
Variable overhead: Br. 12 per labor hour.
Operating Expenses
Fixed selling & admin expenses: Br. 250,000 per quarter.
Variable selling & admin: Br. 8 per meter sold.
Financial Planning
Minimum cash balance: Br. 150,000.
New equipment purchases: Br. 300,000 in Q2.
Question 4: Fast Motors Ltd.
Background Information
Fast Motors Ltd. manufactures motorcycles. The company has peak demand in Q3.
Sales Forecast
Selling price: Br. 6,000 per motorcycle.
Estimated unit sales:
Quarter 2028 Sales (Units)
Q1 1,000
Q2 2,500
Q3 5,000
Q4 3,000
Production & Inventory Policy
Ending inventory = 15% of next quarter’s sales.
Beginning inventory: 400 units.
Raw Material & Labor
Each unit requires 200 kg of steel, costing Br. 30 per kg.
Ending raw material inventory = 10% of next quarter’s needs.
Direct labor: 6 hours per unit at Br. 150 per hour.
Variable overhead: Br. 50 per labor hour.
Cash Flow & Financing
Minimum cash balance: Br. 500,000.
Equipment purchases: Br. 500,000 in Q2 & Q3.
Bank loan available at 14% interest rate.
