AA025 ACCOUNTING 2

[PRACTICAL LEARNING KIT]

Session 2021/2022

This Practical Learning Kit (PLK) is developed to facilitate

the teaching and learning session for the topic of Budget :
Concept of budgeting and the process of preparing
operating budgets and cash budget. The students are
introduced to the use of spreadsheet in the preparation of
budget. The usage of computerized spreadsheet such as
Microsoft excel makes the preparation of budget easier
and more flexible. The usage of excel in preparing budget
will give the students exposure and ability to use
technology in their work.

EDITED BY MASITAH BT MOHAMAD

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 TABLE OF CONTENTS
1. INTRODUCTION 2

2. SECTION A : BUDGET FRAMEWORK 3

3. SECTION B : EXCEL & BUDGETING 9

4. SECTION C : PRACTICAL QUESTIONS 15

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1. LEARNING OUTCOME:
At the end of the course, the students will be able to achive:

CLO 2 – Demonstrate the ability to use managerial accounting terminology, principles,

procedures and techniques.

2. LESSON PLAN:
The time allocated for this topic is 10 hours. So, the lesson is divided into 5 sessions of 2-hour
slot. The lesson plan is as follows:
LEARNING OUTCOME ACTIVITIES RESOURCES
SESSION
At the end of the lesson,
(2 HOURS) LECTURER STUDENTS
students will be able to :
 Identify the components of
 Explain master budget
master budget; operating Slides
and budgeting process Draft format and
and financial budget Framework /
1  Demonstrate how to prepare different
 Prepare sales budget, Graphic
prepare budget (format) budgets
production budget and organizer
direct material budget.
 Explain direct labour
 Prepare direct labour budget and Slides
Complete the
budget and manufacturing manufacturing overhead Framework /
2 framework and
overhead budget. budget Graphic
prepared budget.
 Prepare cash budget.  Demonstrate how to organizer
prepare budget (format)
Use excel worksheet
 Use excel worksheet to Computer &
: create, format,
prepare budget  Demonstrate how to use video : using
sum, link formula
3  Prepare operating budget excel to prepare budget excel (budget);
with other
using excel. (sales & including related formula Practical
worksheet; save,
production budget) questions
email answers
Use excel worksheet
Computer &
 Prepare operating budget : create, format,
 Demonstrate how to use video : using
(direct material; direct sum, link formula
4 excel to prepare budget excel (budget);
labour and manufacturing with other
including related formula Practical
overhead budget) worksheet; save,
questions
email answers
Use excel worksheet
 Prepare financial budget Computer &
: create, format,
(cash budget : including  Demonstrate how to use video : using
sum, link formula
5 schedule of cash collection excel to prepare budget excel (budget);
with other
& payment; minimum cash including related formula Practical
worksheet; save,
balance) questions
email answers
ASSESSMENT (30 minutes : 10%)

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 SECTION A :
BUDGET
FRAMEWORK

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 DEFINITION
OF BUDGET

USES / PURPOSE OF
BUDGET :

SALES
BUDGET
Example 1 Syarikat Persona Alam Sdn Bhd expects sales volume to be 4,000 units in the first quarter,
with 600 unit increases in each succeeding (next) quarter. Sales price is RM55 per unit. Prepare sales
budget for the year ended 31 Dec 2022.

PERSONA ALAM SDN BHD

SALES BUDGET
FOR THE YEAR ENDED 31 DEC 2022
QUARTER 1 2 3 4 YEAR
Expected unit sales
Selling price per unit (RM)
Total sales

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PRODUCTION
BUDGET

Example 2 : Syarikat Persona Alam Sdn. Bhd believes it can meet future sales requirement by
maintaining an ending inventory equal to 20% of the next quarter’s budgeted sales volume.
(Refer to example 1).

PERSONA ALAM SDN BHD

PRODUCTION BUDGET
FOR THE YEAR ENDED 31 DEC 2022
QUARTER 1 2 3 4 YEAR
Expected unit sales
(+) Desired ending inventory
Total required unit
(-) Beginning inventory
Production units

DIRECT
MATERIALS
BUDGET

Example 3 : Syarikat Persona Alam Sdn Bhd wants to have raw materials inventory at the end of the
quarter equal to 10% of next quarter’s production requirements.
a) Assume that the total needed for production for first quarter in 2023 is 19,560kg ; 10% X 19,560
kg = 1,956.
b) To manufacture each product requires 3 kilogram of raw materials and expected cost of direct
materials is RM 5.00 per kilogram.
Prepare direct materials budget.

PERSONA ALAM SDN BHD

DIRECT MATERIALS BUDGET
FOR THE YEAR ENDED 31 DEC 2022
QUARTER 1 2 3 4 YEAR
Production units
(x) Direct materials per unit (kg)
Total direct materials needed for
production (kg)
(+) Desired ending inventory (kg)
Total direct materials required
(-) Beginning inventory (kg)
Direct materials purchase (kg)
(x) Cost per kg (RM)
Total costs of direct materials
purchase (RM)

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 DIRECT
LABOUR
BUDGET
Example 4 At Persona Alam Sdn Bhd, two hours of direct labour are required to produce each unit of
finished goods. The anticipated hourly wage rate is RM10. Prepare direct labour budget.

PERSONA ALAM SDN BHD

DIRECT LABOUR BUDGET
FOR THE YEAR ENDED 31 DEC 2022
QUARTER 1 2 3 4 YEAR
Production units
(x) Direct labour per unit (hours)
Total direct labour hours
(x) Direct labour cost per hour (RM)
Total costs of direct labour (RM)

MANUFACTURING
OVERHEAD BUDGET
Example 5 Syarikat Persona Alam Sdn Bhd expects variable costs to fluctuate with the production volume based on
per direct labour hour rate as follows:
i. Indirect material RM1.00 ; Indirect labour RM1.40
ii. Utilities RM0.40 ; Maintenance RM0.20
Fixed overhead costs per quarter : RM
i. Supervisory salaries 20,000
ii. Depreciation 3,800
iii. Property taxes and insurance 9,000
iv. Maintenance 5,700

Prepare Manufacturing Overhead budget.

PERSONA ALAM SDN BHD

MANUFACTURING OVERHEAD BUDGET
FOR THE YEAR ENDED 31 DEC 2022
QUARTER 1 2 3 4 TOTAL
BASIS : DIRECT LABOUR HOUR

VARIABLE COSTS :

TOTAL VARIABLE COSTS (RM)

FIXED COSTS :

TOTAL FIXED COSTS (RM)

TOTAL MANUFACTURING OVERHEAD COSTS (RM)

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 CASH BUDGET

PERSONA ALAM SDN BHD

CASH BUDGET
FOR THE YEAR ENDED 31 DEC 2022
1 2 3 4 TOTAL
QUARTER
RM RM RM RM RM
Beginning cash balance
Add : Receipts

Total cash receipt

Total cash available
Less : payments /
disbursement

Total cash payments

Minimum cash balance
Total cash required
Excess / (Deficiency) of cash
Financing :
Add : Loan / Borrowing
Less : Investment
Loan repayment
Interest expense

Ending cash balance

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Schedule of collection from customer/ Schedule of cash receipts from sales

Persona Alam Sdn Bhd

Schedule of expected collection from customers
for the year ended 31 December 2022
1 2 3 4 TOTAL
Collections by quarter : RM RM RM RM RM
Current quarter (50%)
Last / previous quarter (50%)
Total payments (RM)
** Reference: Sales budget

Schedule of expected payments for direct materials purchase

Persona Alam Sdn Bhd

Schedule of expected payment for direct materials
For the year ended 31 December 2022
1 2 3 4 TOTAL
Payments by quarter : RM RM RM RM RM
Current quarter (50%)
Last / previous quarter (50%)
Total payments (RM)
** Reference: Direct Materials budget

Example 6 :
Syarikat Persona Alam Sdn Bhd prepares an annual cash budget by quarter. The cash budget is
based on the following assumptions:
1. On 1st January 2022, cash balance is expected to be RM20,000.
2. Sales: 65% are collected in the quarter sold , 35% are collected in the following quarter.
Accounts receivable of RM50 000 at December 31, 2021 are expected to be collected in
full in the first quarter of 2022.
3. Short-term investment securities are expected to be sold for RM4,000 cash in the first
quarter.
4. Direct materials : 50% are paid in the quarter purchased and 50% are paid in the
following quarter. Amount payable of RM15,600 at December 31, 2021 are expected to
be paid in full in the first quarter of 2022.
5. Direct labour : 100% is paid in the quarter incurred.
6. All manufacturing overhead items except depreciation are paid in the quarter incurred.
7. Management plans to purchase a second-hand truck in the second quarter for RM18,000
cash.
8. Company makes equals payments of its estimated annual income taxes of RM6,000
cash.
9. Excess cash will be invested in multiple of RM1,000. In case of cash deficit, a loan will be
made in multiple of RM2,000. Loan are repaid in the earliest quarter if there is sufficient
cash. The annual interest is 12%.
10. Minimum required cash balance is RM20,000.

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 SECTION B :
EXCEL
&
BUDGETING

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(a) HOW TO USE EXCEL
1. Create new file. Save
as Practice1

ROW COLUMN
2. Worksheet consists
of rows
(1,2,3…) and colums
(A, B, C….) An
intersection of row
and column is called
a cell. CELL

3. Type heading ‘My

monthly budget’ in
cell A1. Column A will
be your income and
expenses items,
while row 2 will be
the months.

Row can be inserted

by putting the cursor
where new row is
needed. Right click
the mouse, choose
insert row.

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4. Widen column A. Put
a cursor on top of
column A. Place the
cursor on the line at
the far right of
column A until
symbol appears.
Left click and hold
down the mouse and
drag the cursor until
you get the intended
width.

5. Type the name of

each month Jan –
May, in each column
starting from column
B. The heading My
monthly budget can
be aligned to the
center. Highlight cell
A1 to F1, then click
merge.

6. Key in the amount

for income and
expenses as shown
or use your own
figures.

7. Use function ‘Auto

Sum’ to total up a
range of numbers.
Go to cell B6, add up
the income. Click
Auto sum. The
specified range is
automatically
selected. Make sure
that it is the relevant
range, B4….B5. Press
enter.

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8. Do the same thing
for total expenses.

9. Using formula :
Typing “=” or ‘+’, will
indicate that the
formula is used in the
cell. Some form of
calculation will be
done by excel. The
formula for Surplus /
Excess = Total income
– Total expenses.

Go to cell B16, type

‘=’, to indicate that
formula is used. Then
type the formula B6 –
B14. The result will
be calculated
automatically and
appears in the cell.

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10.Alternatively, we can
type ‘=’ then move
the cursor to select
cell B6, then type
minus sign (-). Move
the cursor to select
B14. Enter.

11. Fill up the

information for
February, income
and expenses as
shown below or use
your own figures.

12. Copy the formula:

Place the cursor at
B6, right click and
copy. The cell will
sort of blink. Place
the cursor at C6,
right click and paste

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13.Repeat copy and
paste for Total
Expenses and Excess.
Alternatively, the
formula can be
copied by dragging it
across the row.

Place the cursor at

B6, left click, hold
and drag it across
row 6 until F6, then
release. The total
income will be
calculated once we
type in the
information.

14. Formatting:
Cell can be
formatted according
to our preference.
For example, we can
format number into
currency.

Highlight the cell or

range, then place the
cursor at menu
ribbon, Number.
Select Currency

15. We can set the

decimal places by
decreasing or
increasing decimal
places.

16. Save your work every

time to ensure you
do not lose any of
your work if anything
goes wrong. Click
save.

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 SECTION C :
PRACTICAL
QUESTIONS

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

Question 1
Perniagaan AA manufacture 2A pencils. These pencils are sold in boxes with a box
containing 6 pencils. A box is price at RM1.50. Estimated sales units for the first four months
of 2022 are as follows :
Month Units
January 21,000
February 24,000
March 22,000
April 20,000

Company policy on ending inventory is the inventory for each month should be equal to
20% of the following month’s sales.

REQUIRED :
i) Sales budget for the first quarter of 2022 and the first quarter total.
ii) Production budget for the first quarter of 2022 and the first quarter total.

Question 2
Syarikat Utama Jaya is a toilet paper manufacturer named Primier. One roll of Primier
contains 25 meters of material X. Cost per meter of material X is RM0.40. The following
information is related to the production budget for the second quarter of 2022 :

Month Units
April 5,500
May 10,000
June 16,000
July 8,000

The ending inventory policy of the company for material X is 25% of the following month’s
production requirement. Opening inventory material X at the beginning of April is sufficient
to fulfill the company’s policy requirements.

REQUIRED:
i) Prepare material usage budget for the second quarter of 2022 and the second
quarter total for 2022.
ii) Prepare material purchase budget for the second quarter of 2022 and the second
quarter total for 2022.

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

Question 3
Dottie Sdn Bhd has provided the relevant information below relating to variable overhead
rate per unit and fixed overhead costs :
RM
Variable overhead rate :
Utilities 4.50
Supply 2.50
Maintenance 1.50
Fixed overhead cost :
Depreciation of
3,000
machinery
Factory supervisor salary 4,500
Factory rental 2,300

Variable overhead rates are based on direct labour hour. The production unit for January is
10,000 and is expected to increase 500 units per month. Production per unit requires 30
minutes of direct labour. Direct labour rate per hour is RM5.

REQUIRED :
i) Prepare direct labour budget for January, February, March and the total for the first
quarter of 2022.
ii) Prepare manufacturing overhead budget for January, February, March and the total
for the first quarter of 2022.

Quesion 4
Sales data of Syarikat Srijaya Bhd are as follows :

November 2021 December 2021 January 2022

(Actual) (Actual) (Estimate)
Cash sales 120,000 150,000 90,000
Credit sales 270,000 400,000 250,000
Total 390,000 550,000 340,000

Company management estimates that 5% of the credit sales cannot be collected. The
receipt of account receivable policy is 60% collected in the month of sales, while the balance
is collected in the following month.

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

Inventory is purchase every month at 70% of the estimated sales volume of the following
month. All purchases are made on credit with 30% payment made in the month of purchase
and the balance paid the following month.

REQUIRED :
i) Prepare a schedule of expected collections from customers for January 2022.
ii) Prepare a schedule of expected payments for direct materials for December 2021.

Question 5
The following is Kelibang Sdn Bhd (KSB) information for budget preparation for the third
quarter of 2022:
1. Monthly sales units and selling price per unit are estimated as follows:

Month Sales (Unit) Selling price per unit (RM)

July 40,000 25
August 70,000 25
September 50,000 20
October 60,000 20

2. Finished goods inventory on 1 July 14,000 units.

3. The ending inventory policy of finished goods is 20 percent of the sales unit of
the following month.
4. A total of 5 units of direct materials are required for each unit of product.
Cost per unit of direct material is RM10.
5. The ending inventory policy of direct material is 30 per cent of the following
month's required production.
6. Direct material ending inventory on 30 September is 84,000 units.
7. The direct material beginning inventory on 1 July is 60,000 units.

REQUIRED :
Prepare the following budget for July, August and September and third quarter total for
2022:
a) Sales budget
b) Production budget
c) Direct material purchase budget

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

Case Study 1
Syarikat Mutiara Kristal (SMK) manufacture various jewellery using pearls and crystals, is
preparing a budget for 2022 for a product called MK101. The following infomation is
obtained to prepare the budget.
i. Estimated unit sales for the first five months of 2022 :

Month Sales units

January 15,000
February 18,000
March 22,000
April 21,000
May 19,500

Selling price is RM18 per unit. Starting in March, selling price will increase to RM22
per unit.
ii. Sales are 60% cash and 40% credit. 70% of credit sales will be collected in the current
month and the balance in the following month. SMK expects no bad debts and cash
discounts will be provided to customers.
iii. Account Receivable balance at 31 December 2021 amounted to RM15,000.
iv. Every MK101 production requires 1.5kg of direct material and 0.75 hours of direct
labour. The material price per kilogram of direct material is RM1.25 and wages rate
per hour is RM6.
v. Overhead is applied to the product using direct labour hours basis. Variable
overhead rate is RM0.60 per hour. While fixed manufacturing overhead cost for each
month is as follows :

RM
Rental 4,500
Insurance 1,200
Depreciation 1,200
Supervisor salary 10,200
Lubricant oil 1,600
Maintenance 2,500

vi. To ensure no interruption in production and sales, the company has determined that
the direct material ending inventory needs to be maintained with the equivalent of
80% of the following month's production requirement. Meanwhile, for the finished

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

goods ending inventory, the total has to be equal to 60% of the following month’s
sales unit.
vii. All materials are purchase on credit, 60% will be settled in the month of purchase,
30% the following month and the balance two months after the purchase. The
account payable opening balance to purchase direct materials is RM16,000 which
will be paid in January.
viii. Ending cash balance as at 31 December 2021 is RM 28,000. Direct labour costs and
overheads will be paid in the month it occurs.

REQUIRED :
Prepare the following budget for the first quarter and the first quarter total for 2022.
i) Sales budget
ii) Production budget
iii) Direct material budget
iv) Direct labour budget
v) Manufacturing Overhead budget
vi) Cash budget

Case Study 2
Wawa Sdn Bhd (WSB) is a manufacturer of components used in the agricultural machinery.
The selling price of the component is RM180 per unit. Estimated sales units for the first four
months of 2022 are as follows:
Units
January 40,000
February 50,000
March 60,000
April 60,000

The following information is related to inventory policy and production specification.

1. Finished goods inventory at 1 January 2022 is 32,000 units.
2. Finished goods ending inventory for each month is 80% of the following month’s sales
unit.
3. Each component unit requires 10 kilograms of B1 direct material. Price per kilogram of
B1 is RM8.00
4. Direct material ending inventory is equal to 50% of next month required direct material
sales.
5. B1 direct material beginning inventory on January 1, 2022 is 200,000 kilograms.
6. Each component requires four (4) hours of direct labor to be completed. The direct labor
wage rate is RM9.25 per hour.

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

REQUIRED :
Prepare the following budget by month and total quarter :
a) Sales budget
b) Production budget
c) Direct material purchase budget
d) Direct labour budget

Case Study 3
A) Paparmoden Sdn Bhd (PSB) wants to prepare a budget for the first quarter of 2022. The
following information is provided by PSB:
a. Sales on January 2022 were 10,000 units. Monthly sales are expected to increase
by 5% from the previous month. The selling price per unit is RM25 and 50% of
sales represent credit on sales collected in the following month. Sales in
December 2020 was RM160,000

b. Purchases for the first three months of 2022 are as follows:

RM
January 171,990
February 180,585
March 175,150

PSB policy is to pay in full a month after the purchase is made. December 2021
purchases were RM163,800

c. Sales commission is 10% of sales paid during the month of sales occurred. Sales
manager salary is RM3,500 per month.

d. General expenses and administration consist of RM8,000 administrative wages

and equipment depreciation of RM5,000.

e. Beginning cash balance in January 2022 is RM50,000.

REQUIRED :
Prepare :
a. Sales budget for every month for the first quarter of 2022.
b. Cash budget for every month for the first quarter of 2022.

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 AA025 ACCOUNTING 2 [PRACTICAL LEARNING KIT]

BE PREPARED
FOR YOUR

PRACTICAL
ASSESMENT

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