BBA 2008

MANAGEMENT ACCOUNTING AND FINANCE 2

CHAI JIA NI
960411-14-5238
202409

JANUARY 2016
CONTENT
N
O

CONTENT

PAGES

1.0

Introduction

2.0

Task 1

3-7

3.0

Task 2

8-12

4.0

Task 3

13-19

5.0

Conclusion

20

6.0

Reference

21

7.0

Coursework

22-28

Introduction

Page 1 of 28

Cash budgeting is the process of forecasting the expected receipts known as cash
inflows, and expected payments known as cash outflows to meet the future obligations.
The written statement of receipts and payments is known as the cash budget. It is a
crystal ball which enables one to observe the future movements in cash position.
It is a mere forecast of cash position of an undertaking for a definite period of time. The
period may be daily, weekly, monthly, quarterly, semi-annually, or annually. The major
two components of cash budget would be forecast first the cash receipts and then
second forecasting the cash disbursements.
Companies use cash budgets to make plans for optimal utilization of cash. The goal is to
retain only the minimum required working capital, investing the surplus cash in
productive ventures, such as making profitable investments, expanding production
capacity, purchasing raw materials in bulk and in using cash to obtain favorable
discounts.
Companies hard-pressed for cash can take many steps to improve their position, such as
reducing credit sales, postponing or reducing dividends, collecting credit early,
rescheduling debt repayment and other payouts, cutting back on manufacturing products
that require resources but do not yield much cash in the short term, and so on.
Companies also look at a cash budget to determine the extent of cash available.
Task 1

Page 2 of 28

What is a cash budget? How it is useful in management decision making?

A cash budget is extremely important, especially for small businesses, because it allows
a company to determine how much credit it can extend to customers before it begins to
have liquidity problems.
For individuals, creating a cash budget is a good method for determining where their
cash is regularly being spent. This awareness can be beneficial because knowing the
value of certain expenditures can yield opportunities for additional savings by cutting
unnecessary costs.
For example, without setting a cash budget, spending a dollar a day on a cup of coffee
seems fairly unimpressive. However, upon setting a cash budget to account for regular
annual cash expenditures, this seemingly small daily expenditure comes out to an
annual total of $365, which may be better spent on other things. If you frequently visit
specialty coffee shops, your annual expenditure will be substantially more.
Preparing a cash budget sheds light on where cash goes. Individuals and companies can
analyze each item of expenditure to determine the purpose of such expenditure and the
value received in return for the expense. This allows them to cut down on unproductive
expenses, bring in financial efficiency, and improve the quality of financial decisions.

Page 3 of 28

A cash budget is very important, especially for smaller companies. It allows a company
to establish the amount of credit that it can extend to customers without having
problems with liquidity.
A cash budget helps you avoid having a shortage of cash during periods of numerous
expenses.
If you cannot pay your expenses because you have a cash shortage, you must resolve
this problem right away by bringing in more revenue, deferring or eliminating some of
your costs or being approved for a larger loan from your bank.

These solutions are costly, time-consuming, and not guaranteed, so it's therefore best to
plan for higher expenses ahead of time, if possible.
Management usually develops the cash budget after the sales, purchases, and capital
expenditures budgets are already made. These budgets need to be made before the cash
budget in order to accurately estimate how cash will be affected during the period. For
example, management needs to know a sales estimate before it can predict how much
cash will be collected during the period.
Management uses the cash budget to manage the cash flows of a company. In other
words, management must make sure the company has enough cash to pay its bills when

Page 4 of 28

they come due. For instance, payroll must be paid every two weeks and utilities must be
paid every month. The cash budget allows management to predict short falls in the
company's cash balance and correct the problems before payments are due.
Likewise, the cash budget allows management to forecast large amounts of cash.
Having large amounts of cash sitting idle in bank accounts is not ideal for companies. At
the very least, this money should be invested to earn a reasonable amount of interest. In
most cases, excess cash is better used to expand and develop new operations than sit
idle in company accounts. The cash budget allows management to predict cash levels
and adjust them as needed.
The cash budget is comprised of two main areas, which are Sources of Cash and Uses of
Cash. The Sources of Cash section contains the beginning cash balance, as well as cash
receipts from cash sales, accounts receivable collections, and the sale of assets. The
Uses of Cash section contains all planned cash expenditures, which comes from the
direct materials budget, direct labor budget, manufacturing overhead budget, and selling
and administrative expense budget. It may also contain line items for fixed asset
purchases and dividends to shareholders.
If there are any unusually large cash balances indicated in the cash budget, these
balances are dealt with in the financing budget, where suitable investments are indicated
for them. Similarly, if there are any negative balances in the cash budget, the financing

Page 5 of 28

budget indicates the timing and amount of any debt or equity needed to offset these
balances.
Cash budgeting is the process of forecasting the expected receipts known as cash
inflows, and expected payments known as cash outflows to meet the future obligations.
The written statement of receipts and payments is known as the cash budget. It is a
crystal ball which enables one to observe the future movements in cash position. It is a
mere forecast of cash position of an undertaking for a definite period of time. The
period may be daily, weekly, monthly, quarterly, semi-annually, or annually. The major
two components of cash budget would be forecast first the cash receipts and then
second forecasting the cash disbursements.
Companies use cash budgets to make plans for optimal utilization of cash. The goal is to
retain only the minimum required working capital, investing the surplus cash in
productive ventures, such as making profitable investments, expanding production
capacity, purchasing raw materials in bulk and in using cash to obtain favorable
discounts. Companies hard-pressed for cash can take many steps to improve their
position, such as reducing credit sales, postponing or reducing dividends, collecting
credit early, rescheduling debt repayment and other payouts, cutting back on
manufacturing products that require resources but do not yield much cash in the short
term, and so on. Companies also look at a cash budget to determine the extent of cash
available, if any, to finance capital expenditures.

Page 6 of 28

Preparing a cash budget sheds light on where cash goes. Individuals and companies can
analyze each item of expenditure to determine the purpose of such expenditure and the
value received in return for the expense. This allows them to cut down on unproductive
expenses, bring in financial efficiency, and improve the quality of financial decisions.
Short-term cash budgets aim to solve cash requirements on a weekly or monthly basis.
These budgets help forecast the payments that need immediate fund allocation and
identify sources that can help offset this requirement. Short-term budgets also help
determine short-term investments that can earn interest while the fund is not being used.
For example, if excess income is available for a couple of weeks, it may be invested in
short-term deposits or in stocks and shares, which can earn interim income for future
requirements.
All businesses need to maintain a safe level of cash to enable them to carry on business
activities. The managers of a business need to determine that safe level. The cash budget
is then prepared by taking into consideration, that safe level of cash. Thus, if a cash
shortage is expected during a period, a plan is made to borrow cash.

Page 7 of 28

Task 2
A shop floor supervisor of a small factory presented the following cost for Job No. 303,
to determine the selling price.

Material
Direct wages 18 hours @ $ 2.50
(Depts. A 8 hours; Depts. B 6 hours; Depts. C 4 hours)
Chargeable expenses

Per
Unit
$
70
45
5
120

Add: 33.33% for expenses

40
cost
160

Analysis of the Profit/Loss

Material used
Direct wages
Depts. A
Depts. B

Account
(for the year 2012)
150,000 Sales less
returns

250,000

10,000
12,000

Page 8 of 28

Depts. C
Special stores
items
Overhead:
Depts. A
Depts. B
Depts. C
Works cost
Gross profit c/d

8,000

30,000
4,000

5,000
9,000
2,000

16,000
200,000
50,000
250,000

250,000

Gross
Selling expenses
Net profit

20,000
30,000
50,000

profits
b/d

50,000
50,000

It is also noted that average hourly rates for the three Departments A, B and C are
similar.
You are required to:
(a) Draw up a job cost sheet.
(b) Calculate the entire revised cost using 2005 actual figures as basis.
(c) Add 20% to total cost to determine selling price.

Page 9 of 28

Job Cost Sheet

Customer Details: A Shop Floor

Job No: 303

Date of commencement: the year 2012

Particulars

Amount

Direct Materials
70
Direct Wages
Depts X (RM2.50 x 8hrs = RM20)
Depts Y (RM2.50 x 6hrs = RM15)

Page 10 of 28

Depts Z (RM2.50 x 4hrs = RM10)

45
Chargeable expenses

5
120

Overheads:

Depts X =

5000
10000

x 100 = 50% x RM20 = RM10

Depts Y =

9000
12000

x 100 = 75% x RM15 = RM11.25

Depts Z =

2000
8000

x 100 = 25% x RM10 = RM2.50

23.75
Works Cost

Selling expenses

143.75
20000
200000

x 100 = 10% of work cost

14.38
Total cost

158.13

Page 11 of 28

Profit (20% of total cost)

31.63

Selling price

189.76

Task 3
Kutazania Ltd, make two products two products F and G. One type of material and one
grade of labour is used to make the products. The actual results are for January to
November 2013.
$ 000
768
640

Sales: F 16,000 units @ $48 each

G 8,000 units @ $80 each
Cost of sales: Material
Labour
Variable

$ 000
704
224
96

Page 12 of 28

overhead
Fixed overhead
Profit

160
1184
224

The following additional information is available:

1. The company operates a standard costing system.
2. During the period mention above the actual material consumed were: F 6 kg per unit
and G8 kg per unit.
3. The standard material used will be as stated in 2013.
4. Material stocks are expected to decrease by 16,000kg. Other stocks will remain
unchanged.
5. The standard material price for 2014 will be the actual average price paid during
January to November 2013.
6. Budgeted output for 2014 is F 24,000 units and G 16,000 units.
7. The standard labour rate is $6 per hour. The actual rate paid throughout the period id
higher than the standard. A $32,000 adverse labour rate variance was incurred. In 2014
the wage rate will be $1.40 per hour more than the actual wage rate for 2013. Of the
amount $1 per hour is the result of a productivity agreement with the union. As a result,
the company will be able to reduce the standard time for each product by 20%.
8. Standard labour cost for F is $12 per unit and for G $24 per unit.

Page 13 of 28

9. The variable overhead varies directly with direct labour hours. Budgeted overhead
will be at the same rate as 2013. Overhead to not include wages.
You are required for 2014 to:
(a) Prepare the following budgets (both quantity and value) :

(i) Material purchase budget

Working:
Product
Sales
Selling price
Units produced or sold
Material consumption per unit
Consumption (kg)

F
(RM)
768,000

48
16,000

6kg
96,000kg

G
(RM)
640,000

80
8,000

8kg
64,000kg

Total
RM000

160,000kg

Actual average price = RM 704,000 160,000kg

= RM4.40 per kg

Page 14 of 28

(ii) Wages budget:

Working:

Product
Standard
20%
Standard
Budgeted
Standard

labour time
reduction in
time for

Page 15 of 28

output (unit)
Hours

for
standard
2014 (mins)

2013 (mins)
time (mins)

F
60
12 (60X20%)
48

Page 16 of 28

G
120
14 (120X20%)
96

Product

F
G

Units produced

16,000
8,000

or sold

Page 17 of 28

X 1 hour
X 2 hour

Standard time

16,000
16,000
32,000
2013

Standard hours

Page 18 of 28

Wage rate for 2013 = labour cost standard hours

= RM224,000 32,000 hours

= RM7 per hour

Page 19 of 28

Wages Budget 2014

Standar Standard
Product
F
G

d hours
19,200
25,600
44,800

stage rate
RM 8.40
RM 8.40

Labour cots
RM161,280
RM215,040
RM376,320

Wage rate for 2014 = wage rate for 2013 + increased

rate
= RM7 + RM1.40
= RM8.40

Page 20 of 28

(b) Calculate the net cost saving Kutazania will achieve in 2014 as a result of the
productivity agreement. Assume that there is no restriction in labour hours.
(b) Net savings
Budgeted output

Standard time

Product

(units)

(hours)

Standard hours

24000

24000

16000

32000

Total

56000

*Actual labour cost = 56000 x (RM6 + RM 1.40)

= RM414, 400

Page 21 of 28

Statement of Net Savings

Actual (RM)

Budget (RM)

Saving (RM)

Labour cost

414,400

376,320

38,080

Variable Overheads

168,000

134,400

33,600

Total

582,400

510,720

71,680

Page 22 of 28

Conclusion
Decision-making is regarded as the cognitive process resulting in the selection of a
belief or a course of action among several alternative possibilities. Every decisionmaking process produces a final choice that may or may not prompt action.

Decision-making is the process of identifying and choosing alternatives based on the

values and preferences of the decision-maker.Small business owners and managers
make decisions that affect everyday operations and long-term profitability. These
decisions typically involve making choices to achieve desired outcomes.

For example, a franchiser may decide between two overseas locations for its first
overseas expansion, or a company president may decide how to respond to a sales
slowdown. The factors affecting decision-making include economic conditions,
competitive environment and organizational culture.

Managerial economics is the application of economic theory to economic practice with

an aim of ensuring that business decisions meet their intended goal. It is through
management economics that a business understands how to access and utilize scarce
resources to ensure optimal performance of the same to generate revenues and profits.

Page 23 of 28

Reference

Textbook BBA 2008

http://www.investopedia.com/terms/c/cashbudget.asp

http://smallbusiness.chron.com/primary-purpose-cash-budget-64572.html

http://mykeepit.blogspot.my/2013/02/what-is-cash-budget-how-it-is-usefulin.html

http://accountingexplained.com/managerial/master-budget/cash-budget

BBA 2008
MANAGEMENT ACCOUNTING AND FINANCE 2

Page 24 of 28

COURSEWORK

CHAI JIA NI
960411-14-5238
202409

JANUARY 2016
1. Please describe SEVEN types of benchmarking.
Types of Benchmarking

Page 25 of 28

1 1 Internal benchmarking: the first step in benchmarking focuses on looking at the

internal processes, functions, activities, practices, operations or systems in order to
provide a framework for improvement.
2 External benchmarking: focuses on identifying the best practices of other companies
that will work best for the company.
3 Competitive benchmarking: focuses on identifying how competitors perform in
critical operational areas in order to gain competitive advantage.
4 Industry benchmarking: focuses on identifying similar industry performance, trends,
innovations and new ideas in order to set better performance goals and criteria.
5 Best-in-class benchmarking: focuses on identifying across the industry bets practices
in order to achieve something different and better.
6 Collaborative benchmarking: focuses on collaboration with other companies to get
information, especially quantitative, in order to get started.
7 Shadow benchmarking: focuses on shadowing a company with whom it has many
things in common without alerting competition.
2. List and describe SIX factors are considered for purposes of budgeting and budgetary
control.

Page 26 of 28

A number of factors are considered for purposes of budgeting and budgetary control.
Performance Budget
For budgetary control purposes, some authors have suggested that when the actual
performance differs from the planned performance, a performance budget should be
prepared. The performance budget is a flexible budget with revenues and costs adjusted
to the actual level of activity. A comparison of actual results with the performance
budget will highlight the price and efficiency variances. However, the performance
budget may not be the optimum measure. The performance budget is based upon the
flexible budget, which was structured upon presupposed operational techniques, pricing
structures, and market conditions. `In this sense the performance budget represents an
ex ante measure; it is a control tool in that its basic structure was determined in advance'
(Don T. DeCoster).
Time Factor
Time is limited. The constraints of time are reflected in budgeting. Time constraints
relate to the planning horizon and planning cycle. The planning horizon is the time span
for which plans should be developed. It must be unique to the type of decision, and to
the needs and characteristics of the company. For instance, the time dimension for
project planning (e.g. construction of a factory) would differ from that of period
planning (e.g. annual profit plan). The planning cycle requires time schedules to be

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established for starting and finishing planning work so that plans are available on time.
Managers are not expected to have outside commitments during this critical period.
Time Plans
John J. W. Neuner identifies three time plans to prepare budgets.
1 A long range planning period covering many years. Such a program will affect
company expansion policy regarding new products and the matter of investing in new
plant and equipment.
2 Overall planning for the fiscal accounting period. Usually this covers a period of one
year and refers to the master budget, since it sets forth the operating plans and profit
objective for the next fiscal period. This budget phase includes all areas of the business
and co-ordinates the sales, production, distribution, and finance functions.
3 A month-to-month basis budget gives in detail, in months, the overall planning budget
for the fiscal accounting period. This plan will be the most effective in controlling costs,
sales, and expenses because of the shortness of the period involved. The month-tomonth budget is used as major guide to action by the businessman'. The time plan
referred to is also called the budget period.
Budget Committee

Page 28 of 28

Between the preparation of the budget and its approval by top management, a budget
committee should analyse and evaluate the adequacy of the proposed budget. It is also
concerned with the review and revisions of forecasts, laying down general policies
affecting more than one function, revising budgets, and scrutinizing budget reports. An
organization may form either
1 a budget committee with key officers as members, for example, the chief executive,
budget director, finance director, and other key experts like economists. Supporting it
will be special committees headed by line managers;
2 a budget committee with line executives as members. The existence of the committee
formalizes the budget programme.

Budget Controller
The committee is headed by a budget controller (or budget director or budget officer).
Because many people are involved in preparing a budget, and many interrelated actions

Page 29 of 28

and decisions have to be taken, co-ordination by an executive is necessary. The budget

controller is responsible for the organization of the budgeting activity; he is responsible
for the time schedules, for the budget procedure and for changing them if necessary, for
issuing instructions pertaining to general activity of his staff, for reporting to
management the performance results, and for designing an effective cost control system.
A budget controller should `provide decisional inputs to a profit plan, should not have
responsibility for enforcing the budget, should not be put in a position of approving
budgets or taking line action concerning efficient and inefficient operating results, and
should not be responsible for cost control' (Glen A. Welsch). A budget controller should
report to the chief executive in order to give his position the prestige and the same
authority as those of other managers.
Budget Manual
A budget manual helps to guide all those involved in budgeting. It is a rule or reference
book. `It tells what to do, how to do it, when to do it, which form to do it on' (C. T.
Horngren). The benefits of having a budget manual include the following: it defines and
clarifies the budget programme, it minimizes training in budget work, and it puts down
procedures in writing. Reliance on the memory of individualswho may not be in the
job foreveris avoided. A budget manual should have the following sections: value of a
budget, responsibility centre functions, financial control department function, budgeting
process, sources of and changes in budget expense, and aids to good budgeting. A

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budget manual is initially prepared in draft form and distributed to all concerned for
their comments and suggestions. The comments and suggestions will be carefully
considered in preparing the final budget manual.

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