A budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms. It represents the primary method of communicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes an important basis in business.” Discuss the importance of budgeting in a business.

A budget is a formal written statement of management’s plans for a specifiedfuture time period, expressed in financial terms. It represents the primarymethod of communicating agreed-upon objectives throughout the organization.Once adopted, a budget becomes an important basis in business.” Discuss theimportance of budgeting in a business.
Question 1 (Total: 40 marks)Kuno Berhad has a branch that manufactures and sells solar panels. Demand forsolar panels has picked up recently and the company is looking to increase itsoutput. Kuno Berhad branch currently manufactures 600,000 solar panels annuallyand is looking to double this capacity. A new plant and machinery has becomeavailable at an annual rent that would cost RM1.8 million, payable immediately on 1January 2014. This new plant and machinery would have a useful life of 10 yearsand would be depreciated on a straight-line basis with no residual value. Thedirectors of Kuno Berhad are now wondering whether they should go ahead with thenew solar panel factory. They have produced the following projections upon which tobase their forecasts.Kuno Berhad sells each solar panel for RM150. Demand for the increased output isexpected to be as follows:Month Units of panelsJanuary 20,000February 30,000March 30,000April 40,000May 80,000June 80,000July 80,000August 80,000September 60,000October 40,000November 40,000December 20,000 It is assumed that production and sales take place in the same month. All panels are sold to credit customers 10% of whom pay in the month of sale,60% in the month after and the remanding 30% two months after the month ofsale. Material cost is 30% of the selling price of the panels. Materials suppliers are paidone month after sales have taken place. Production labour is 20% of selling price; 70% of this amount is payable in themonth of production and the remanding is paid one month after production hastaken place. Other variable production costs of 10% of selling price are paid in the month ofsales.Sunway University Business School Sample ACC1024 Final ExaminationPage 2 of 8 Fixed costs are estimated to be RM50,000 per month and are to be paid in themonth in which they are incurred. Kuno Berhad manufactures to order and sellsat its production and has no inventories of solar panels at the end of the year.Required:a) Prepare the following statements for the next 4 months, starting January 2014:(i) A sales budget. (2 marks)(ii) A production cost budget. (4 marks)(iii) A cash budget. (14 marks)b) “A budget is a formal written statement of management’s plans for a specifiedfuture time period, expressed in financial terms. It represents the primarymethod of communicating agreed-upon objectives throughout the organization.Once adopted, a budget becomes an important basis in business.” Discuss theimportance of budgeting in a business.(15 marks)c) Despite the advantages of preparing budgets, it is argued that budgets can bemisused. Discuss the possible drawbacks in budgets.(5 marks)

 
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