You are a manager for Peyton Approved a pet supplies manufacturer. This responsibility requires you to create budgets make pricing decisions and analyze the results of operations to determine if changes need to be made to make the company more efficient.
You will be preparing a budget for the quarter July through September 2014. You are provided the following information. The budgeted balance sheet at June 30 2014 is:
Peyton Approved
Budgeted Balance Sheet
30-Jun-15
ASSETS
Cash
$42000
Accounts receivable
259900
Raw materials inventory
35650
Finished goods inventory
241080
Total current assets
578630
Equipment
$720000
Less accumulated depreciation
240000
480000
Total assets
$1058630
LIABILITIES AND EQUITY
Accounts payable
$63400
Short-term notes payable
24000
Taxes payable
10000
Total current liabilities
97400
Long-term note payable
300000
Total Liabilities
397400
Common stock
$600000
Retained earnings
61230
Total stockholders equity
661230
Total liabilities and equity
$1058630
All assumptions are new and apply to the July through September budget period.
1. Sales were 20000 units in June 2015. Forecasted sales in units are as follows: July 18000; August 22000; September 20000; October 24000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
2. The June 30 finished goods inventory is 16800 units.
3. Company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales.
4. The June 30 raw materials inventory is 4600 units. The budgeted September 30 raw materials inventory is 1980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given months ending raw materials inventory to equal 20% of the next months materials requirements.
5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
6. Overhead is allocated based on units of production. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20000 per month is treated as fixed factory overhead.
7. Monthly general and administrative expenses include $12000 administrative salaries and 0.9% monthly interest on the long-term note payable.
8. Sales commissions are 12% of sales and are paid in the month of the sales. The sales managers monthly salary is $3750 per month. The following critical elements must be addressed by completing the budget templates found on the Budgets tab.
Specifically the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the Budgets tab of your student workbook.
Step 1: Prepare a Sales Budget
Complete Part A – Sales Budget on the budget tab by using the information found in the budgeted balance sheet above.
Consider assumption 1 while completing this critical element: Sales were 20000 units in June 2015. Forecasted sales in units are as follows: July 18000; August 22000; September 20000; October 24000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
You can find an example of a sales budget in Exhibit 22-5 on page 1324.
Step 2: Prepare a Production Budget
Complete Part C – Production Budget on the budget tab below by using the information found in the budgeted balance sheet above.
Consider assumption 1 while completing this critical element: Sales were 20000 units in June 2015. Forecasted sales in units are as follows: July 18000; August 22000; September 20000; October 24000. The sales price per unit is $18.00 and the total product cost is $14.35 per unit.
Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16800 units.
Consider assumption 3 while completing this critical element: Company policy calls for a given months ending finished goods inventory to equal 70% of the next month’s expected unit sales.
You can find an example of a production budget in Exhibit 22-6 on page 1325.
Step 3: Prepare a Manufacturing Budget (See text example Exhibits 22-7 22-8 and 22-9 on pages 13261328)
Complete Part E – Manufacturing Budget on the budget tab by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts the Raw Materials Budget the Direct Labor Budget and the Factory Overhead Budget.
Raw Material Budget
Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4600 units. The budgeted September 30 raw materials inventory is 1980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements.
Consider units to be produced found in the production budget while completing this critical element.
Direct Labor Budget
Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour.
Consider units to be produced found in the production budget while completing this critical element.
Factory Overhead Budget
Consider assumption 6 while completing this critical element: Overhead is allocated based on units of production. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20000 per month is treated as fixed factory overhead.
Consider units to be produced found in the production budget while completing this critical element.
Step 4: Prepare a Selling Budget
Complete Part G – Selling Expense Budget.
Consider assumption 8 while completing this critical element: Sales commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3750 per month.
Step 5: General and Administrative Expense Budget
Complete Part I – General and Admin Expense Budget.
Consider assumption 7 while completing this critical element: Monthly general and administrative expenses include $12000 administrative salaries and 0.9% monthly interest on the long-term note payable.
Specifically the following critical elements must be addressed when performing the Budget Variance Analysis using the budget variance worksheet.
The actual quantity of material used was 31000 with an actual cost of $7.75 per unit. The actual labor hours were 33000 with an actual rate per hours of $15.
Step 1: Complete A. Develop a variance analysis including a Budget Variance performance report and appropriate variances for materials labor and overhead.
Start with the Labor and Materials variance tab.
Standard costs/quantities come from raw materials budget and the labor budget.
Use Exhibits 23-11 on page 1416 and 23-12 on page 1419 as guides.
After completing the Labor and Materials variance tab transfer variances to Budget Variance Report tab.
Congratulations! You have completed the workbook portion of your Final Project Part I. To complete the discussion portion of Final Project Part I complete the Final Project Part I Student Discussion document.