Bob Sdn Bhd is preparing its master budget for Year 2021. Relevant data pertaining to its sales, production, and direct materials budgets are as follows:

Quarter

1

2

3

4

Total (units)

Sales

20%

25%

25%

30%

1,000,000

Sales price

RM40

RM40

RM40

RM45

Sales in the first quarter of 2022 are expected to be 10% higher than the budgeted sales for the first quarter of 2021.

Production: Management desires to maintain the ending finished goods inventories at 20% of the next quarter's budgeted sales volume.

Direct materials: Each unit requires 2 kg of raw materials at a cost of RM10 per kg. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements.

Required:

a.Assume the production requirements for first quarter of 2022 are 500,000 kg, prepare the sales, production, and direct materials budgets by quarters for 2021.

(20 marks)

b.Describe operating and financial budgets and give at least two examples of each.

(5 marks)

c.Discuss the importance of the sales forecast and items that influence its

accuracy. (5 marks)