Q1. (a) The owner of Indah Suasana Hardware, Mr. Lingam is very keen to prepare a budget and very anxious with his cash position. Indah Suasana Hardware will have to borrow in order to finance purchases made in preparation for high- expected sales during the busy beginning quarter of the year. Borrowing occurs at the end of a month when the company needs cash and the repayment occurs at the end of a month when cash is available. The company pays interest in cash at the end of every month at a monthly rate of 1% on the amount outstanding during that month. Mr. Lingam has gathered the data below to prepare the budget. In addition, he will acquire machiney in January 2018 for RM17,000 cash and pay insurance of RM5,500 cash in March 2018. RM 198,300 Indah Suasana Hardware Statement of Financial Position as at 31 December 2017 Fixed assets: Plant and machinery (net book value) Current assets: Cash Trade receivables Inventory Total assets Liability: Trade payable Equity: Capital Retained earnings Total liabilities and equity 40,000 60,000 36,300 334,600 33,660 217,640 83,300 334,600 Budgeted expenses (per month): Salaries and wages Carriage outwards as a percent of sales Advertising Depreciation Other expenses as a percent of sales All expenses are paid in cash in the month incurred RM9,600 4% RM7,000 RM4,000 2% Budgeted sales: December 2017 (actual) January 2018 February 2018 March 2018 April 2018 RM 100,000 220,000 250,000 285,000 200,000 Other information: 1. Gross profit rate is 45%. 2. 40% of sales are for cash and experience shows that 5% of all credit sales will budgeted eventually become bad debts. These bad debts are not included in the above administration and selling overheads. One-third of the remaining debtors will pay in the month of sales while the other two-thirds will pay in the following month of sales. 3. Suasana Hardware has to maintain a cash balance of at least RM15,000 at the end of each month. 4. Purchase of inventory are paid 55% in the month of purchase and the balance due is paid in the month following the purchase. 5. The desired monthly closing inventory is 30% of the next month's cost of goods sold. Required: For the month of January, February and March 2018 prepare: (i) Sales budget (3 marks) (ii) Cash collection schedule. (3 marks) (iii) Purchase budget. (4 marks) (iv) Cash disbursement schedule. (3 marks) (v) Operating expenses budget. (8 marks) (vi) Cash budget. (10 marks) (b) Some managers focus on the operating budget, while some are more concerned with financial budget. How does the operating budget differ from the financial budget? (9 marks)