accounting for bugeting and planning

Question 1: Managerial Planning and Ethics

Robert Leyland, the marketing manager for a division that produces a variety of paper products,is considering the divisional manager's request for a sales forecast for a new line of paper napkins. The divisional manager has been gathering data so that he can choose between two different production processes.
The first process would have a variable cost of RM15 per case produced and fixed costs of
RM150, 000. The second process would have a variable cost of RM9 per case and fixed costs of RM300,000. The selling price would be RM45 per case. Robert had just completed a marketing analysis that projects annual sales of 45,000 cases. He is reluctant to report the
45,000 forecast to the divisional manager. He knows that the first process would be labour intensive, whereas the second would be largely automated with little labour and no requirement for an additional production supervisor. If the first process is chosen, Jerry William, a good 2 friend, will be appointed as the line supervisor. If the second process is chosen, Jerry and an entire line of labourers will be laid off.
After some consideration, Robert revises the projected sales downward to 33,000 cases. He believes that the revision downward is justified, as it will result in the divisional manager to choose the manual system which is more sensitive to the needs of current employees-a sensitivity that he fears his divisional manager does not posses. The divisional manager is too focused on quantitative factors in his decision making and usually ignores the qualitative aspects.

Required:
a. Compute the break-even point for each process.

b. Compute the sales volume for which the two processes are equally profitable.

c. Identify the range of sales for which the manual process is more profitable than the automated process. Also, identify the range of sales for which the automated process is more profitable than the manual process.

d. Why does the divisional manager want the sales forecasts?

e. From ethical stance, discuss Robert's decision to alter the sales forecast. Do you agree with it? Is he acting ethically?

Question 2: Cash Budgeting and Control

The controller of Optima Bhd is gathering data to prepare the cash budget for July. He plans to develop the budget from the following information:

a. Cash sales consist of 35% of the total sales.
b. Of the credit sales, 60% are collected within the month of sale. Half of the credit sales
collected within the month (accounts paid within 10 days) receives a 2% cash discount. 20% of credit sales are collected in the following month; remaining credit sales are collected the month thereafter. There are virtually no bad debts.

c. Sales for the second two quarters of the year are given below:

d. The company sells all that it produces each month. The cost of raw materials equals 22% of each sales dollar. The company requires a monthly ending inventory equal to the coming month's production requirements. Of raw materials purchases, 50% are paid for in the month of purchase. The remaining 50% are paid for in the following month.

e. Wages total RM105,000 each month and are paid in the month incurred.

f. Budgeted monthly operating expenses total RM336,000, of which RM45,000 is depreciation and RM6,000 is expiration of prepaid insurance. (the annual premium of RM72,000 is paid on January 1).

g. Dividends of RM130,000, declared on June 30, will be paid on July 15.

h. Old equipment will be sold for RM25,200 on July 4.

i. On July 13, new equipment will be purchased for RM173,000.

Sales (in RM)

April - 450,000
May - 580,000
June - 900,000
July - 1,140,000
August - 1,200,000
September - 1,134,000

j. The company maintains a minimum cash balance of RM20,000.

k. The cash balance on July 1 is RM27,000.

Required:
Prepare a cash budget for July. Give a supporting schedule that provides details of the cash collection from sales.