QUESTION 1 (45 MARKS)

TASTY Cookies produces cookies for sale at grocery stores throughout Malaysia. The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year, which ends December 31.Information related to the budget are as follows:

1. Prior yearquarterly sales were as follows:

First quarter	64,000 units
Second quarter	76,800 units
Third quarter	96,000 units
Fourth quarter	83,200 units

Unit sales are expected to increase 25 percent, and each unit is expected to sell for RM8. The ending finished goods inventory equal to 10 percent of next quarter's sales. Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 9,000 units.

2. Each unit of product requires 1.5 pounds of direct materials per unit, and the cost of direct materials is RM2 per pound. Management prefers to maintain ending raw materials inventory equal to 30 percent of next quarter's materials needed in production. Assume raw materials inventory at the end of the fourth quarter budget period is estimated to be 41,000 pounds.

3. Each unit of product requires 0.20 direct labour hours at a cost of RM12 per hour.

4. Overhead costs incurred include the followings.

Variable overhead costs are:

Indirect materials	RM0.20 per unit
Indirect labour	RM0.15 per unit
Other	RM0.35 per unit

Fixed overhead costs each quarter are:

Salaries	RM28,000
Rent	RM22,000
Depreciation	RM16,165

5. All selling and administrative costs are fixed, and quarterly selling and administrative cost estimates for the coming year are as below.

Salaries	RM60,000
Rent	RM 7,000
Advertising	RM10,000
Depreciation	RM 8,000
Other	RM 1,000

Required

a) Prepare the following budget for each quarter and total for the year:

i. Sales budget

ii. Production budget

iii. Direct materials purchases budget

iv. Direct labour budget

v. Manufacturing overhead budget

vi. Selling and administrative budget

vii. Budgeted income statement

(40 marks)

b) Explain how budgets can be used to help organizations such as TASTY Cookies to plan future activities and control operations?

(5 marks)