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acct_2332_fall_13_budgeting_project
SECOND (GROUP) PROJECT
REQUIRED: This project is worth 20 points. It is an opportunity to put together some of the
things you have learned in different parts of this course. Read the case and answer the
requirements below.
For this project you may work together in groups of up to 3 people. Group members may come
from any of professor Milbrath’s or Professor Li’ sections of Acct. 2332. The names, usernames
and Peoplesoft numbers of the group members must be written clearly below.
If there is only one member in the group you should leave the rows for the second and third
member below blank. If there are two members you should leave just the third row blank.
To receive credit you must write full answers, using the templates provided for each requirement
We must ask you to handwrite your answers and show any calculations you feel are needed.
Hand your project in to the accounting lab 133MH during lab hours on or before Thursday
November 21 at 7 PM.
1) GROUP MEMBERS:
NAME Blackboard Username Peoplesoft Number
YOUR RECEIPT NUMBER _______________(lab assistants will give you this)
PROJECT FACTS
Manny Fold owns a factory that specializes in making titanium valves for high performance
engines on a just in time basis. Thus, Manny produces what he sells in a particular month. There
are no inventories of finished goods or work in process. However, Manny does require that an
inventory of direct raw materials equal to 16% of next month’s production requirement be
available at the end of each month. To build his business and gain new customers Manny has
extended generous credit terms to his customers. While Manny is confident about the
fundamentals of his business, he is concerned about the possible income and cash flow
implications.
The variable costs of producing a valve are budgeted at $6.60 per valve (3/4 pound of titanium
alloy costing $8.80 per pound for materials), $2.50 per valve for direct labor, and $5.90 per valve
for variable manufacturing overhead. Fixed manufacturing overhead is budgeted at $78,600 per
month during the 4th quarter. The detailed components of variable and fixed overhead are as
listed below.
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For variable overhead, electric power is budgeted at $2.10 per unit, indirect labor is budgeted at
$3.20 per unit, and supplies are budgeted at $.60 per unit. For fixed overhead depreciation is
budgeted at $12,000 per month, Supervision and other factory salaries are budgeted at $35,000
per month, property tax and insurance combined are budgeted at $9,000 per month, maintenance
is budgeted at $7,000 per month, licensing fees and permits to use proprietary technology are
budgeted at $7,600 per month, and other miscellaneous fixed overhead expenses are budgeted at
$8,000 per month.\
Manny’s customers drive a hard bargain because they can easily switch suppliers. They all do
pay eventually, but many of them take their time about doing so and Manny is reluctant to get
tough with them for fear they will take their business elsewhere. He tells you that all his sales are
on credit (no cash sales). He typically collects only 10% of sales in the month of the sale, 40% of
sales in the month after the sale and 50% of sales two months later (for example 10% of July
sales are collected in July, 40% in August and 50% in September). On the other hand he must
pay for 75% of his materials purchases in the month of the purchase and 25% in the month after.
Cash costs of labor and overhead other than depreciation, property taxes and insurance are paid
in the same month they are incurred. Property taxes and insurance are paid up through December
15. The amount due for the next 6 months (starting December 16) must be paid in early
December. Monthly fixed selling and administrative costs, other than interest, amount to
$39,600, of which $8,000 is depreciation. These operating costs, excepting depreciation, are paid
in cash in the month incurred. There are no variable selling or administrative costs. Manny has
large tax loss carry forwards from a previous unsuccessful business venture. Therefore he does
not expect to pay any income taxes this year. (In other words you may ignore income taxes).
The budgeted selling price of valves for October, November, and December is $22 per valve.
Because of market competition there is not much flexibility to adjust the price and the price is
expected to be stable during the 4th quarter of 2013. Manny budgeted sales in units for October at
18,000 units. For November he expects to sell 20,000 units but he is uncertain about sales for
December and January. His high forecast for these two months is 22,000 units for December and
19,000 for January. His low forecast is 19,000 units for December and 16,000 units for January.
Manny requires a minimum cash balance of $10,000 at the end of each month. If the budgeted
month end cash balance will fall below this level Manny plans to borrow enough cash at the
beginning of that same month to keep his ending balance up to the minimum level. Manny’s
bank charges him interest at the rate of ½ % per month on the balance outstanding during that
month. Manny pays the interest at the beginning of the following month and plans to repay as
much as he can at the beginning of that month without letting his budgeted cash balance go
below $10,000 at month end. (On the budget round interest to the nearest dollar)
The company’s managerial accountant has resigned unexpectedly before the 4th quarter budget
could be completed. You have been contracted to complete the master budget for December and
the for the 4th quarter (including some missing numbers from November)
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REQUIREMENTS:
1) Construct Manny’s budgeted cost of goods sold and operating income statement
for December and the total for the 4th quarter. October and November have
already been provided. Complete the template provided below. Show any
necessary calculations. You may use either the high forecast or the low forecast
for this budget. Choose either the high or the low.(4 points)
2) Using the same forecast as in requirement 1 construct Manny’s budget for raw
materials purchases in December and the total for the 4th quarter (You will also
have to complete the budget for November) Complete the template provided
which already has information for October and November. (3 points)
3) Using the same forecast as you used in requirement 1 construct Manny’s cash
budgets for December and the total for the 4th quarter (You will also have to
provide the missing number for November payments for purchases). Complete the
templates provided below which already have information for October and
November. Show any necessary calculations. Note: there are no capital
expenditures or dividends budgeted for December. (4 points)
4) Using the same forecast as you used in requirement 1 construct Manny’s budgeted
balance sheet at the end of December. Complete the template provided which
already has the September 30 balances. (3 points)
5) During September Manny actually produced and sold 17,500 valves. Actual sales
revenues were $381,950. Actual costs and the original budget based on 18,000
units were as detailed in the table below. Complete the table by constructing a
flexible budget based on 17,500 valves and determining the variances for the
performance report. Your performance report should be similar to the
performance report shown in exhibit 10.13 of page 611 except your report
includes more detailed production cost line items. Use the template provided
below for your answer. (4 points)
6) Write a brief report explaining some possible reasons why Manny’s profits were
different from the amount projected in the master budget for September (2 points).
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REQUIREMENT 1
Budgeted Income Statement
October November December 4th Quarter
Raw Materials
Used
$118,800 $132,000
Direct Labor
$ 45,000 $50,000
Variable
Overhead
$106,200 $118,000
Fixed Overhead
$78,600 $78,600
Cost of Goods
Sold
$348,600 $378,600
October November December 4th Quarter
SALES
REVENUES
$396,000 $440,000
LESS COST OF GOODS
SOLD
$348,600 $378,600
GROSS PROFIT $ 47,400 $ 61,400
LESS OPERATING
EXPENSES
$ 39,600 $ 39,600
OPERATING
INCOME
$ 7,800 $21,800
COMPUTATION OF COST OF GOODS SOLD
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REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material)
October November December 4th Quarter
Valves to be
produced
18,000 20,000
X Pounds per
unit
0.75 0.75
Titanium to be
used
13,500 15,000
Desired ending
inventory
(16%)
2,400
Pounds of
Titanium
Needed
15,900
Less Beginning
Inventory
2,160 2,400
Pounds to be
purchased
13,740
Cost per pound $8.80 $8.80
Cost of
Purchases
$120,912
REQUIREMENT #3
COMPUTATION OF CASH COLLECTIONS
October November December 4th Quarter
Sales Made 2
Months Ago
$187,000 $190,975
Sales Made 1
Month Ago
$152,780 $158,400
Sales Made this
Month
$39,600 $44,000
Total Cash
Collections
$379,380 $393,375
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COMPUTATION OF CASH PAYMENTS FOR OPERATIONS
October November December 4th Quarter
Payments for purchases
of materials
$119,559
Payments for direct
Labor
$45,000 $50,000
Payments for Variable
Overhead
$106,200 $118,000
Payments for Fixed
Overhead
$57,600 $57,600
Payments for Property
Taxes and Insurance
$0 $0
Payments for other
operating expenses
$31,600 $31,600
Total Cash Payments
$359,959
October November December 4th Quarter
Beginning
Balance of Cash
$10,641 $30,062
Cash Collections $379,380 $393,375
Total cash
available
$390,021 $423,437
Less: Cash
Payments
$359,959
Ending Cash
Balance Before
Financing:
$30,062
Borrowings
$0
Repayments
$0
Interest
Payments
$0
End Cash
Balance
$30,062
COMBINED CASH BUDGET
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REQUIREMENT #4 BUDGETED BALANCE SHEET
September 30 December 31
ASSETS:
Current Assets
Cash $10,641
Accounts Receivable $530,755
Inventory (raw materials) $19,008
Prepaid Insurance and
Property Taxes
$22,500
Total Current Assets $582,904
Equipment and Furniture
$950,000
Accumulated Depreciation
($540,000)
Equipment & Furniture (net) $410,000
Total Assets $992,904
LIABILITIES AND EQUITY
Liabilities (all current)
Accounts Payable $28,875
Interest Payable 0
Bank Loans Payable 0
Total Liabilities $28,875
Owner’s Equity
(Net income increases this)
$964,029
Total Liabilities and Equity $992,904
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Actual Costs and Template for Requirement #5
Use this page to answer this requirement.
Performance Report for September
Cost Item Actual results Flexible
Budget
Variance
Flexible
Budget for
17,500 units
Sales Volume
Variance
Static Master
Budget for
18,000 units
Sales Revenues $381,950
$396,000
Direct Materials
used
$113,720 $118,800
Direct Labor $43,600 $ 45,000
Supplies $16,686 $ 10,800
Electric Power $36,454 $37,800
Indirect Labor $59,360 $57,600
Supervision and
other salaries
$33,858 $35,000
Maintenance $8,925 $7,000
Insurance and
property tax
$9,000 $9,000
Permits and
license fees
$7,600 $7,600
Factory
depreciation
$12,000 $12,000
Other Overhead
expenses
$8,650 $8,000
Total Production
Expenses
$349,853 $348,600
Total Selling &
Administrative
Expenses
$39,867 $39,600
Total Expenses $389,720 $388,200
Operating
Income
($ 7,770) $7,800
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REQUIREMENT 6 (SPACE FOR REPORT)
