BMAC5203/MAY16/A-NK

a. Damai Laut Sdn. Bhd. makes marine equipment. The company has been
experiencing losses on its pump product line for several years. The most recent
quarterly contribution format income statement for the pump product line is as
follows:
Damai Laut Sdn. Bhd.
Income Statement - Pump Product Line
for the Quarter ended 31 March
RM

850,00
0

Sales
Variable expenses:
Variable manufacturing expenses
Sales commissions
Shipping

330,00
0
42,000
18,000
390,00
0
460,00
0

Total variable expenses

Contribution margin
Fixed expenses:
Advertising
Depreciation of equipment (no resale value)
General factory overhead *
Salary of product-line manager
Insurance on inventories
Purchasing department **
Total fixed expenses
Net operating loss

RM

270,00
0
80,000
105,00
0
32,000
8,000
45,000
540,00
0
(80,00
0)

*
Common costs allocated on the basis of machine
hours.
** Common costs allocated on the basis of sales dollars
Discontinuing the pump product line would not affect sales of other product lines
and would have no effect on the companys total general factory overhead or total
purchasing department expenses.
Required:
Would you recommend that the pump product line to be discontinued? Support
your answer with appropriate computations.
(8)
(TOTAL: 30)

BMAC5203/MAY16/A-NK

1. Budgeted sales and merchandise purchases for the next year, as well as
actual sales and purchases for the last quarter of the current year are:
Merchandise
Sales
Purchases
RM
RM
2.

3.
4.
5.
6.
7.
8.

9.

The

Current year:
Fourth quarter actual

200,000

126,000

Current year:
First quarter estimated
300,000
186,000
Second quater estimated
400,000
246,000
Third quarter estimated
500,000
305,000
Fourth quarter estimated
200,000
126,000
company normally collects 65% of a quarters sales before the quarter ends
and another 33% in the following quarter. The remainder is uncollectible. This
pattern of collections is now being experienced in the current years fourthquarter actual data.
Eighty percent of a quarters merchandise purchases are paid for within the
quarter. The remainder is paid for in the following quarter.
Selling and administrative expenses for next year are budgeted at RM50,000
per quarter plus 15% of sales. Of the fixed amount, RM20,000 each quarter is
depreciation.
The company will pay RM10,000 in dividends per quarter.
Land purchases of RM75,000 will be made in the second quarter, and
purchases of RM48,000 will be made in the third quarter. These purchases
will be for cash.
The Cash account contained RM10,000 at the end of the current year. As
treasurer, you feel that this represents a minimum balance that must be
maintained.
The company has an agreement with a local bank that allows the company to
borrow in increments of RM1,000 at the beginning of each quarter, up to a
total loan balance of RM100,000. The interest rate on these loans is 2.5% per
quarter and for simplicity we will assume that interest is not compounded.
The company would, as far as it is able, repay the loan plus accumulated
interest at the end of the year.
At present the company has no loans outstanding.

Required:
a. Prepare the following by quarter and in total for next year.
i.
A schedule of expected cash collections.
ii.

A schedule
purchases.

of

expected

cash

disbursements

for

(5)
merchandise
(5)

BMAC5203/MAY16/A-NK

b. Compute the expected cash disbursements for selling and administrative

expenses, by quarter and in total, for next year.
(6)
c. Prepare a cash budget, by quarter and in total, for next year.
(14)