TITLE: GROUP ASSIGNMENT

“ASSIGNMENT 1”

SECTION: MC-021
COURSE CODE: GSFM7514
COURSE NAME: ACCOUNTING & FINANCE FOR DECISION MAKING
GROUP: 6

MATRIC CONTACT
STUDENT NAME SECTION
NUMBER NUMBER
MOHD AIDIL ASRAF
MC220918738 MC-021 013-9293136
ABDULLAH
FARAH FATIMAH ABDULLAH MC220918765 MC-021 013-9016490
DHIVENISHA RAMESH
MC220517179 MC-021 010-668 0216

CHOW KAH LAY

MC220918383 MC-021 012-3903304

LAVANIA KRISHNAN
MC220516984 MC-021 016-3709801
ASSIGNMENT QUESTION

BGV the maker of industrial liquidating agent is preparing the budget for 2023. The sales
department has indicated the annual sales of  32,000 units and the selling price to be set at
RM100 per unit.
The sales department have estimated that the bulk of the sales will be in the 2 nd and 3rd quarter
of the year. For the 1st quarter, sales will be 20% of the annual sales, the 2 nd and 3rd Quarter,
sales will be 30% and 40% respectively while for remaining will be in the 4 th Quarter.
Customers always pay 90% of their purchases within the same quarter and the remaining
amount in the next quarter.
The company intends to have an inventory of finished products of 1,500 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.
Each product requires 3kg of raw materials and 4 hours of labour time to complete. The raw
material  is RM10 per kg and workers are paid RM7 per hour.
The production department intends to have 5,000 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 production requires variable overheads that is set based on direct labor hours. The
predetermined rate is RM1.50 per direct labor hour.
Annual Fixed Overhead expenses are as follows: -
1. Factory Rent RM 120,000
2. Depreciation for machines RM 30,000
3. Factory Maintenance and Cleaning RM 60,000

Other non-manufacturing expenses annually are as follows: -

1. Advertising RM 150,000
2. Salaries RM 360,000              
3. Office Expenses RM 30,000
4. Depreciation for office equipment is RM 40,000
5. Rent of the administration building is RM 60,000
Additional information

 The company will be paying the 2022 tax payable in the 2nd Quarter of 2023.
 An equipment will be purchased in the 1st Quarter at a cost of RM 250,000.
 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.
 Interest rate for any short-term loans will be 8% and the loan has to be settled within
the same year that it is made.
 Dividends will be paid on the 4th Quarter. It was suggested that dividend amount is
RM70,000.
 The number of ordinary shares is 1 million units.
 In 2022, the average share price is RM1.20. The average industry PE ratio is 6 time

Required:
a. Prepare a complete Master Budget for 2023.
b. Clarify the assumptions and decisions that you have made in preparing the budget.
c. Prepare a performance analysis on the budget which include financial ratio analysis,
economic value-added analysis, and market value analysis, between 2022 and the budget.
 A) MASTER BUDGET

PRICE
SALES UNITS SALES
(RM)
Sales 32,000 100 3,200,000.00
PRODUCTION BUDGET UNIT COST
Required unit for sale 32,000    
Required unit for ending 1,500    
Beginning unit 2,000 100 200,000.00
UNIT TO PRODUCE 31,500

Raw Materials per Cost Per Unit

Raw Materials Budget (RM)
Unit (RM)
Raw Materials 3 10 30
Required Raw Materials 94,500 10 945,000
Ending Raw Materials
5,000 10 50,000
Estimate
Beginning Raw Materials 8,000 10 80,000
Raw Materials to Purchase 91,500 10 915,000.00

DIRECT LABOR (DL) DL HOUR PER DL RATE DL HOURS DL COST

BUDGET UNIT (RM) REQUIRED (RM)
Direct Labor 4 7 126,000 882,000.00

OVERHEAD BUDGET
VARIABLE PRE-DETERMINED RATE DL HOUR VARIABLE OVERHEAD
OVERHEAD (RM) REQUIRED COST (RM)
Variable overhead 1.50 126,000 189000

FIXED OVERHEAD RM
Rent (Land, factory) 120,000
Depreciation for machines 30,000
Factory Maintenance and Cleaning 60,000
TOTAL FIXED OVERHEAD 210,000
TOTAL OVERHEAD 399,000
SELLING & ADMIN (RM)
Advertising 150,000
Salaries 360,000
Office Expenses 30,000
Depreciation for office equipment 40,000
Rent of the administration building 60,000
Total Selling and Administration 640,000
DIRECT MATERIAL: (RM)
Beginning raw materials inventory 80,000
Add: Purchases of raw materials 915,000
Raw materials available for use 995,000

Deduct: Ending raw materials inventory 50,000

Raw materials used in production 945,000

DIRECT LABOR 882,000.00
Manufacturing overhead (RM)
Variable Overhead 189000
Fixed Overhead 210,000
Total Manufacturing Overhead Cost 399,000.00
Total manufacturing cost 2,226,000.00
Total Units Produced 31,500
Product Cost 71
Ending Finished Goods 106,000.00

Costs of goods sold

Beginning finished goods inventory 200,000
Add: Cost of goods manufactured 2,226,000
Goods available for sale 2,426,000
Deduct: Ending finished goods inventory 106,000.00
Cost of Goods Sold 2,320,000.00

QUARTER
PERIOD QUARTER 1 QUARTER 3 QUARTER 4 ANNUAL
2
Percentage from Annual 20% 30% 40% 10% 100%
Sales Units 6400 9600 12800 3200 32,000
Sales (RM) 640,000.00 960,000.00 1,280,000.00 320,000.00 3,200,000.00
QUARTER
Production Budget QUARTER 1 QUARTER 3 QUARTER 4 ANNUAL
2
Required Units from
6,400 9,600 12,800 3,200 32,000
Sales
Required Units for
300 450 600 150 1,500
Ending
Begining Units 400 600 800 200 2,000
Units to Produce 6,300 9,450 12,600 3,150 31,500

Raw Materials Budget QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL

Required Raw Materials 18,900 28,350 37,800 9,450 94,500
Ending Raw Materials
1,000 1,500 2,000 500 5,000
Estimate
Begining Raw Materials 1,600 2,400 3,200 800 8,000
Raw Materials to Purchase 18,300 27,450 36,600 9,150 91,500
Raw Materials Cost (RM) 183,000.00 274,500.00 366,000.00 91,500.00 915,000.00
Direct Labour Budget QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL
Direct Labour Hours
25,200 37,800 50,400 12,600 126,000
Required
Direct Labour Cost (RM) 176,400.00 264,600.00 352,800.00 88,200.00 882,000.00
Variable Overhead QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL
Variable Overhead
25,200 37,800 50,400 12,600 126,000
Allocation

Variable Overhead Cost 37,800.00 56,700.00 75,600.00 18,900.00 189,000.00

(RM)

Fixed Overhead QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL

Rent (Land, factory) 30,000 30,000 30,000 30,000 120,000
Depreciation 7,500 7,500 7,500 7,500 30,000
Factory Maintenance and
15,000 15,000 15,000 15,000 60,000
Cleaning
Total Fixed Overhead 52,500.00 52,500.00 52,500.00 52,500.00 210,000.00
SELLING & ADMIN QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL
Advertising 37,500 37,500 37,500 37,500 150,000
Salaries 90,000 90,000 90,000 90,000 360,000
Office Expenses 7,500 7,500 7,500 7,500 30,000
Depreciation for office
40,000
equipment 10,000 10,000 10,000 10,000
Rent of the administration
60,000
building 15,000 15,000 15,000 15,000
Total Selling and
160,000.00 160,000.00 160,000.00 160,000.00 640,000.00
Administration
SALE BUDGET (End of
quarter) QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL
Total sales (RM) 640,000.00 960,000.00 1,280,000.00 320,000.00 3,200,000.00
% of customers pay in the
 
period 90% 90% 90% 90%
% of customers pay after
 
the period 10% 10% 10% 10%
Trade Receivable Last Year 70,000       70,000
First Sales 576,000 64,000     640,000
Second Sales   864,000 96,000   960,000
Third Sales     1,152,000 128,000 1,280,000
Fourth Sales       288,000 288,000
Total Cash Collections
3,238,000
(Cash coming in) 646,000 928,000 1,248,000 416,000
Trade Receivable Budget 32,000
 PAYMENT FOR RAW
MATERIALS
PURCHASED QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 ANNUAL
Cost of Raw Materials to be
183,000.00 274,500.00 366,000.00 91,500.00 915,000.00
Purchased
% of payment in the period
 
of purchase 50% 50% 50% 50%
% of payment after the
 
period of purchase 50% 50% 50% 50%
Accounts Payable
150,000
Beginning Balance 150,000      
First Sales 91,500 91,500     183,000
Second Sales   137,250 137,250   274,500
Third Sales     183,000 183,000 366,000
Fourth Sales       45,750 45,750
TOTAL
DISBURSEMENTS FOR 1,019,250
MATERIALS 241,500 228,750 320,250 228,750
Trade Payable Budget 45,750

QUARTER
CASH BUDGET QUARTER 1 QUARTER 2 QUARTER 3 4 ANNUAL
  20% 30% 40% 10% 100%
Cash Balance Beginning 49,250.00 50.00 79,316.67 339,233.34 49,250.00
ADD: Receipts 646,000 928,000 1,248,000 416,000 3,238,000
3,287,250.
Total Cash Available 695,250.00 928,050.00 1,327,316.67 755,233.34 00
LESS: Disbursements          
Direct Materials 241,500 228,750 320,250 228,750 1,019,250
Direct Labor 176,400 264,600 352,800 88,200 882,000
Variable Overhead 37,800 56,700 75,600 18,900 189,000
Fixed Overhead 45,000 45,000 45,000 45,000 180,000
Selling and Administrative 150,000 150,000 150,000 150,000 600,000
CoporateTax   59,250     59,250
Equipment Purchase 250,000       250,000
Pay Long Term Principal 12,500 12,500 12,500 12,500 50,000
Pay Interest Long Term 12,000 12,000 12,000 12,000 48,000
Dividends       70,000 70,000
Total Disbursements 925,200 828,800 968,150 625,350 3,347,500
Excess (Defiits) of Cash -229,950 99,250 359,167 129,883 -60,250
Financing          
Borrowing in the quarter
230,000
(long term loans) 230,000      
Repayment of Borrowings   15,333 15,333 15,333 46,000
(Long term loan)
Interest   4,600 4,600 4,600 13,800
Total Financing 230,000 19,933 19,933 19,933  
Cash Balance Ending 50 79,317 339,233 109,950 109,950

INCOME STATEMENT 2022 2023

Sales    2,500,000 3,200,000
Cost of Goods Sold    1,650,000 2,320,000
Gross Margin       850,000 880,000
Selling and Administration
      540,000 600,000
Expense
EBITDA       310,000 280,000
Depreciation          25,000 40,000
EBIT       285,000 240,000
Interest Expense          48,000 61,800
Earning Before Tax       237,000 178,200
Corporate Tax          59,250 60,000
Net Income 177,750 118,200
Previous Retain Earnings 207,250 335,000
Add: Net Income       177,750 118,200
Less: Dividends          50,000 70,000
New Retain Earnings    335,000 383,200
Previous Plant and
1,645,000 1,645,000
Machines
Add: New Equipment   250,000
New Plant and Machines 1,645,000 1,895,000

Previous Accumulated
  900,000
Depreciation
Add: Current Depreciation   70,000
New Accumulated
970,000
Depreciation

BALANCE SHEET 2022 2023

Current Assets    
Cash              49,250 109,950
Trade Receivables              70,000 32,000
Raw Materials              80,000 50,000
 Inventories            200,000 106,000
Total Current Assets            399,250 297,950
Land        1,000,000 1,000,000
Plant and  Machines        1,645,000 1,895,000
Less: Accumulated
           900,000 970,000
Depreciation
Plant and Machines Net            745,000 925,000
TOTAL ASSETS 2,144,250 2,222,950

Current Liabilities    
Trades Payable            150,000 45,750
Taxes Payable              59,250 60,000
Total Current Liabilities            209,250 105,750
Non-Current Liabilities            600,000 734,000
Stock Holders’ Equity    
Common Stock        1,000,000 1,000,000
Retained Earnings            335,000 383,200
Total Equity 1,335,000 1,383,200
TOTAL LIABILITIES
2,144,250 2,222,950
AND EQUITY

B) ASSUMPTIONS & DECISIONS

Any theory, and by extension any paradigm, is centered on certain assumptions. It is

also crucial that all assumptions are stated clearly and that there are enough of them to
adequately describe the situation at hand. Explanation of assumptions is considerably more
essential in research techniques used to test the hypotheses. The use of assumptions in the
budget makes it easier to understand how changes to the fundamental assumptions of a
master budget will affect all supplementary schedules and the projected financial statements.
The budget should be a way to keep track of the solutions implemented and determine their
efficacy. Making decisions is significant since it facilitates selecting among many
possibilities. Gathering all relevant data and weighing its advantages and disadvantages is
necessary before making a decision. Focusing on actions that can aid in making the right
decisions is essential. By determining the efficacy, we can make a decision that is most
suitable.
 The first assumption from the master budget is the payment for the raw materials. As
per the information given, we assume that it is advisable for the company to change the
percentage of during and after the purchasing of raw materials. As per given in the master
budget, 50% payment in the period of purchase and 50% payment after the period of
purchase will help us to maintain a balanced payable. By this decision making, the trade
payables are reduced from RM 150,000 to Rm 45,750 with a difference of RM 104,250.
The next assumption is the company will benefit by getting long term loan. As per the
calculation made, we predict that a loan amount of RM230,000 for a long term, which is 5
years, can be beneficial for the company to gain in our company’s current account. By this
decision making, and as per the calculation company will be benefitted with the increase in
cash account with the balance of RM109,950 in year 2023.
Finally, we will manage to produce 32000 units by purchasing equipment that costs
RM 250,000, so that we can achieve the sales target. As we decided to make a loan of RM
230,000, we will be able to produce the required units for sale and make sure that we are not
facing out of stock situation which is crucial to run a company.

C) PERFOMANCE ANALYSIS
(I) FINANCIAL RATIO ANALYSIS BETWEEN 2022 AND THE BUDGET 2023

No Financial Ratios Year 2022 Year 2023

Current ratio: 1.9080 2.8175

1 Liquidity Ratio Quick ratio: 0.9522 1.8151

Cash ratio: 0.2354 1.0397

Debt- equity ratio: 0.6062 0.6071

2 Leverage Ratio Debt ratio 0.3774 0.3778

Interest coverage ratio: 6.4583 4.5307

3 Efficiency Ratio Asset turnover ratio: 0.1446 0.1260

Inventory turnover: 8.2500 21.8868

Days sales in inventory ratio: 44.2424 16.6767

 Gross margin: 2.7419 3.1429

Operating margin: 0.9194 0.8571

4 Profitability Ratio
Return on assets (ROA): 0.0829 0.0532

Return on equity (ROE): 0.1331 0.0855

Table 1.0: Financial Ratios for years 2022 and 2023

Ratio analysis is a quantitative method of gaining insight into a company's liquidity,

leverage, efficiency, and profitability by studying its financial statements. The data above
can be used to compare a company's financial standing with industry averages while
measuring how a company stacks up against others within the same sector. The liquidity
ratio measures a company's ability to pay off its short-term debts as they become due, using
the company's current, or quick assets. To measure the liquidity ratios, there are three ratio
measurements current ratio, quick ratio, and cash ratio.

According to Table 1.0 above, the current ratio is 1.9080 in the year 2022 and
increased to 2.8175 in 2023 due to the current liabilities decreased up to 49.46%. This means
the company has enough cash to pay off debts. While the quick ratio increased too from
0.9522 in 2022 to 1.8151 in 2023 due to current assets decreased up to 25.37%. This also
shows that A higher quick ratio signals that the company can be more liquid and generate
cash quickly. Moreover, the cash ratio increased from 0.2354 to 1.0397 due to a cash increase
of up to 12325%. This means the company has more cash on hand, lower short-term
liabilities, or both.

Furthermore, the leverage ratio may also be used to measure a company's mix of
operating expenses to get an idea of how changes in output will affect operating income.
Common leverage ratios include the debt-equity ratio, debt ratio, and interest coverage ratio.
The debt-equity ratio has no major difference in 2022 and 2023, which is 0.60. The debt-to-
equity ratio reflects a company's debt status. Subsequently, this means the company's debt
status is still healthy as a ratio of 2.0 or higher is usually considered risky. The same debt
ratio has no major difference which is 0.38. This means from a risk perspective, debt ratios of
0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult
to borrow money. Moreover, the interest coverage ratio decreased from 6.4583 in 2022 to
4.5307 in 2023. This is due to a decrease in EBITDA while an increase in interest expenses.
Subsequently, even though the coverage ratio decreased it is still above average as the
coverage ratio above 3 or higher, the easier it should be to make interest payments on its debt
or pay dividends.

In addition, the efficiency ratio is typically used to analyse how well a company uses
its assets and liabilities internally. An efficiency ratio can calculate the turnover of
receivables, the repayment of liabilities, the quantity and usage of equity, and the general use
of inventory and machinery. These ratios such as asset turnover ratio, Inventory turnover, and
days sales in inventory ratio can also be used to track and analyse the performance of
commercial and investment banks.

The asset turnover ratio is slightly decreased from 0.1446 in 2022 to 0.1260 in 2023.
This is due to the assets increased up to 3.67%. Generally, a decrease in the asset turnover
ratio means problems with surplus production capacity, poor inventory management, and bad
tax collection methods. Besides, the inventory turnover has a drastic increase from 8.2500 in
2022 to 21.8868 in 2023. This is due to the cost of goods sold increasing up to 40.61% from
2022 to 2023. The inventory turnover increase shows the company's product is in demand. It
could also mean the company initiated an effective advertising campaign or sales promotion
that caused a boost in sales. Aside from that, the days sales in inventory ratio are speedy from
44 days in 2022 to 17 days in 2023. The high ratio implies strong sales or insufficient
inventory to support sales at that rate.

Ultimately, the profitability ratio indicates how efficiently a company generates

profit and value for shareholders. Gross margin is one of the most widely used profitability or
margin ratios. The gross margin here increased from 2.7419 in 2022 to 3.1429 in 2023. This
is due to gross profit increasing up to 3.53% while EBITDA decreased up to 9.68% from
2022 to 2023. An increase in gross margin would not be useful to compare a retailer's fourth-
quarter gross profit margin with its first-quarter gross profit margin because they are not
directly comparable. Comparing a retailer's fourth-quarter profit margin with its fourth-
quarter profit margin from the previous year would be far more informative. This increased
due to the company may experience seasonality in their operations.
 While the operating margin is slightly decreased from 0.9194 in 2022 to 0.8571 in
2023. Operating margin is the percentage of sales left after covering the cost of goods sold
and operating expenses. This means the company’s operating costs are high in 2023.
Moreover, the return on assets (ROA) decreased from 0.0829 in 2022 to 0.0532 in 2023. This
is due to net income decreasing up to 33.50% while the invested assets increased by up to
3.67% from 2022 to 2023. A decrease in ROA indicates the company might have over-
invested in assets that have failed to produce revenue growth. Last but not least, the return on
equity (ROE) decreased from 0.1331 in 2022 to 0.0855 in 2023. Declining ROE shows the
company is becoming less efficient at creating profit/ lower net income is generated from a
larger asset base funded with debt.

In conclusion, a sustainable business and mission require effective planning and

financial management. Ratio analysis is a useful management tool that will improve an
understanding of financial results and trends over time, and provide key indicators of how
efficient a company’s operations are and how profitable the business is set up to be.

(II) ECONOMIC VALUE-ADDED ANALYSIS BETWEEN 2022 AND THE BUDGET

2023

According Rudianto (2013: 218), a way to measure the economic value added
is by using the following formula:

EVA = NOPAT - (Invested Capital * WACC)

Information:
Invested capital = Debt + capital leases + shareholders' equity
WACC = Weighted average cost of capital

Calculation:
NOPAT = Net operating profit – taxes
2022 2023
RM285 000 x (1 – 0.80) RM240 000 x (1 – 0.75)
= RM57 000 = RM60 000
 Invested Capital: Total assets – Current Liabilities
2022 2023
RM2 144 250 – RM209 250 RM2 222 950 x RM 105 750
= RM1 935 000 = RM2 117 200

EVA = NOPAT - (Invested Capital*WACC)

2022 2023
RM 57 000 - (RM 1 935 000 RM60 000 - (RM2 117 200
*8.53%) *10.13%)
= RM159 355.50 = RM154 472.36

(III) MARKET VALUE ANALYSIS BETWEEN 2022 AND THE BUDGET 2023

Calculation:

Market Value = (Number of Shares) x (price per share) + Value of debt

2022 2023
SHARES UNIT 1,000,000 1,000,000
SHARE PRICE RM1.20 RM1.20
PE RATIO 6 6
RM7,200,000.00 RM7,200,000.00
VALUE OF DEBT RM2,144,250.00 RM2,222,950.00
MARKET VALUE 9,344,250 9,422,950

Book Value = Total common equity + Value of debt

2022 2023
TOTAL ASSETS 2,144,250 2,222,950
TOTAL LIABILITIES 809,250 839,750
BOOK VALUE 1,335,000 1,383,200

MVA = Market Value of the Firm - Book Value of the Firm

2022 2023
MARKET VALUE 9,344,250 9,422,950
BOOK VALUE RM1,335,000.00 RM1,383,200.00
MARKET VALUE
8,009,250 8,039,750
ANALYSIS
Reference

1) Bloomenthal, A. (2022, August 17). How Ratio Analysis Works. Investopedia.

https://www.investopedia.com/terms/r/ratioanalysis.asp

2) JAMESCHEN-March22,2022- Economic Value Added (EVA) Definition: Pros and Cons,

https://www.investopedia.com/terms/e/eva.asp#:~:text=The%20equation%20used

%20for%20invested,%2D%20current%20liabilities)%20*%20WACC.