ACCT 2332 Budgeting Project Spring 2016

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ACCT 2332 MANAGERIAL ACCOUNTING

GROUP PROJECT – SPRING 2016

REQUIRED:Thisprojectisworth36points. It is an opportunity to put together some ofthethingsyouhavelearnedindifferentpartsof thiscourse. You can work in groups of three (maximum), two or individually. Readthecaseand answer the requirements below.

Thenames, usernames and Peoplesoft numbers of thegroup members must be written clearly below.

To receive credityou must writefullanswers, using the templates provided for each requirement. Wemust ask you to handwriteyour answers and show any calculations youfeelareneeded.

Handyourprojectintothe accounting lab 133MH duringlabhoursonorbeforeThursday April 21 at3  PM. (Syllabus says 3 pm so Lab can close at “normal” time)

1)  GROUP MEMBERS:

 

NAME

BlackboardUsername

PeoplesoftNumber

 

 

 

 

 

 

 

 

 

 

YOUR RECEIPT NUMBER                              (lab assistants will give you this)

 

 

PROJECTFACTS

MannyFoldownsafactorythatspecializesin making titanium valves for high performance engines onajustintimebasis.Thus,Mannyproduceswhathesellsinaparticularmonth.Thereareno inventoriesoffinishedgoodsor work in process. However, Manny does require that aninventory of                direct raw materials equal to20%of next month’s production requirement beavailableattheendofeach month.Tobuildhisbusinessandgainnew customers Mannyhasextended generous credit termsto his customers. While Manny is confident about the fundamentals of his business, he is concernedaboutthepossible income andcashflow implications.

The variable costs of producingavalvearebudgetedat$7.20pervalvefordirect materials (3/4poundof titaniumalloy costing $9.60 per pound), $2.80 per valve for direct labor,and $5.50 per valve forvariable manufacturing overhead.  Fixed manufacturing overheadis budgeted at $74,700 per monthduringthe2ndquarter.Thedetailedcomponents ofvariableandfixed overhead are as listed below.


 

 

Forvariableoverhead,electricpowerisbudgetedat$2.30perunit, indirect labor is budgeted at $2.50perunit,andsuppliesarebudgetedat$.70perunit.  Forfixedoverheaddepreciationisbudgetedat

$10,000permonth,Supervisionand other factorysalariesarebudgeted at $40,000 per month, propertytax and insurance combined are budgeted at $8,000 per month (which have been paid in advance through June 15 – see below), maintenance is budgeted at $7,000 permonth, licensing fees and permits touseproprietarytechnologyare budgeted at $3,400 per month, andother miscellaneous fixed overhead expenses arebudgetedat$6,300permonth.

 

Manny’s customers drive a hard bargain because theycaneasilyswitchsuppliers.They alldo payeventually, but many of themtaketheir time aboutdoingsoandMannyisreluctanttogettoughwiththemfor fear they will take their business elsewhere. Hetellsyouthatallhissalesareoncredit(nocashsales).Hetypically collects only 10% of sales in the month ofthesale,30%ofsalesinthe monthafterthesaleand60%ofsalestwomonthslater(for example 10% of June sales would becollected inJune, 30% in July and 60% in August). On the other hand he must pay for 70% of his materialspurchases in the same month of the purchaseand30%inthemonth after.Cashcostsoflaborandoverhead other than depreciation, property taxesandinsurancearepaidin the same month they areincurred.Propertytaxesand insurance are paid in advance through June 15. The amount due for the next 6months (starting June 16) must be paid in early June.

 

 

Allofthesellingand administrative expensesarefixed. Monthly fixed sellingand administrative costs,otherthaninterest, amount to$43,600,of which $6,000 is depreciation. These operating costs,exceptingdepreciation,arepaidincashinthe month incurred.Mannyhaslargetax loss carry forwardsfroma previous unsuccessful business venture.Thereforehedoesnot expect to pay any income taxesthis year. (In other wordsyou may ignore income taxes).

 

 

Manny plans to buy new equipment costing $80,000 during the month of June.  This equipment will bereadyforusestartinginJuly.

 

 

ThebudgetedsellingpriceofvalvesforApril, May, and June is $23 per valve. Because of marketcompetition thereisnotmuch flexibility to adjust the price and the price is expected to be stable duringthe2ndquarterof2014.MannybudgetedsalesinunitsforAprilat17,000units.ForMayheexpects tosellonly18,000units.Hehas projectedsales of 19,000 units for June and18,000 units for July.

 

 

Manny requires a minimumcash balance of $10,000 at theendofeachmonth.Ifthebudgetedmonthend cash balance will fall below this levelMannyplanstoborrow enoughcashatthebeginningofthatsame month to keep his ending balance up to the minimum level. Manny’s bank charges himinterest atthe rate of ½ % per month on the balance outstandingduringthat month. Manny’s bank charges him interest at the rate of ½ % per month on the balance outstanding during that month. Mannypaystheinterestatthebeginning ofthe following month and plans to repay as much as he can at the beginning of that monthwithout letting his budgeted cash balance go below $10,000 at month end.  (On the budgeted incomestatement roundinterestexpensetothenearestdollar)


 

 

The company’s managerial accountant has resignedunexpectedlybeforethe2ndquarterbudgetcouldbe completed.Youhavebeencontractedtocompletethe master budgetforJuneandforthe2ndquarter (including some missing numbers fromMay).  Balances as of March 31 for all relevantaccounts have already been calculated bythisaccountanttogetherwith some of the amounts for Apriland May.  You may assume that these balances and amounts shown in the tables below are correct.

 

 

 

REQUIREMENTS: (To Equal 36 project points)

1)                              Construct Manny’s budgeted income statement for June and the total for the 2ndquarter.AprilandMayhavealreadybeen provided. Complete the template providedbelow.  Show any necessary calculations.  (10 points)

2)                              Using the same forecast as in requirement1construct Manny’s budgetforraw materialspurchases inJune and the total for the 2nd quarter(Youwillalso have to complete thebudgetforMay) Complete thetemplateprovided which already has information forApril and May. (4  points)

3)                              Usingthe same forecastasyouusedinrequirement 1 construct Manny’scashbudgetsfor June and the total for the 2nd quarter(Youwillalsohavetoprovide the missingnumber for May payments for purchases). Complete thetemplatesprovidedbelowwhich already have information for April and May.Show any necessary calculations.(5 points)

4)                              Using the same forecast as you used inrequirement 1 construct Manny’sbudgetedbalancesheetattheendofJune.Complete the template providedwhichalreadyhastheMarch31balances.(5  points)

5)                              DuringMarchMannyactuallyproducedandsold 16,500 valves. Actual sales revenues were$381,950.Actualcostsandthe original March budget based on 16,000 valveswereas detailed inthe table below.Complete the table by constructing a flexiblebudget based on 16,500 valves and determining the variances for the performancereport.Usethe template provided below for your answer.(10  points)

6)                              Write abriefreportexplaining some possiblereasonswhyManny’sprofitsweredifferentfromthe amount projected in the master budgetforMarch(2points).


 


REQUIREMENT 1


 

BudgetedIncomeStatement


 

 

 

April

May

June

2nd Quarter

SALESREVENUES

$391,000

$414,000

 

 

DIRECTMATERIALS USED

($122,400)

($129,600)

 

 

DIRECTLABOR

($47,600)

($50,400)

 

 

VARIABLEOVERHEAD

($93,500)

($99,000)

 

 

CONTRIBUTIONMARGIN

$127,500

 

 

 

FIXED OVERHEAD

($74,700)

($74,700)

 

 

FIXED OPERATINGEXPENSES

($43,600)

($43,600)

 

 

OPERATINGINCOME

$9,200

 

 

 

INTERESTEXPENSE

$0

 

 

 

NET INCOME

$9,200

 

 

 


 

 

REQUIREMENT #2   BUDGETED PURCHASES OF TITANIUM ALLOY (directmaterial)

 

April

May

June

2nd Quarter

Valves to be produced

17,000

18,000

 

 

X Pounds per unit

0.75

0.75

 

 

Titaniumto be used

12,750

13,500

 

 

Desired endinginventory (20%)

2,700

 

 

 

Pounds ofTitanium Needed

15,450

 

 

 

Less Beginning Inventory

2,550

2,700

 

 

Pounds to be purchased

12,900

 

 

 

Cost per pound

$9.60

 

 

 

Cost ofPurchases

$123,840

 

 

 

 

REQUIREMENT #3

COMPUTATION OF CASH COLLECTIONS (Use this to calculate March & Feb sales)

 

 

April

May

June

2nd Quarter

SalesMade2 Months Ago

$213,900

$220,800

 

 

SalesMade1 Month Ago

$110,400

$117,300

 

 

SalesMadethis Month

$39,100

$41,400

 

 

Total Cash Collections

$363,400

$379,500

 

 


 

COMPUTATION OF CASH PAYMENTS

 

 

April

May

June

2nd Quarter

Payments for purchasesofmaterials

$121,680(used to calculate March purchases)

 

 

 

Payments for directLabor

$47,600

$50,400

 

 

Payments for VariableOverhead

$93,500

$99,000

 

 

Payments for FixedOverhead

$56,700

$56,700

 

 

Payments for PropertyTaxes and Insurance

$0

$0

 

 

Payments for otheroperating expenses

$37,600

$37,600

 

 

Capital Expenditures

$0

$0

 

 

TotalCash Payments

$357,080

 

 

 

 

 

 

April

May

June

2nd Quarter

Beginning Balance of Cash

$10,324

$16,644

 

 

Cash Collections

$363,400

$379,500

 

 

Total cashavailable

$373,724

$396,144

 

 

Less: Cash Payments

$357,080

 

 

 

Ending Cash Balance Before Financing:

$16,644

 

 

 

Borrowings

$0

 

 

 

Repayments

$0

 

 

 

Interest Payments

$0

 

 

 

End CashBalance

$16,644

 

 

 


 

 

 

REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30

 

 

 

March 31

June 30

ASSETS:

Current Assets

 

 

 

 

Cash

$10,324

 

 

 

Accounts Receivable

$545,100

 

 

 

Inventory(rawmaterials)

$24,480

 

 

 

Prepaid Insurance andProperty Taxes

$20,000

 

 

 

Total Current Assets

 

$599,904

 

 

 

Equipment and Furniture

$880,000

 

 

 

Accumulated Depreciation

($540,000)

 

 

 

Equipment & Furniture (net)

 

$340,000

 

 

Total Assets

 

$939,904

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Liabilities  (all current)

 

 

 

 

Accounts Payable

$34,992

 

 

 

Interest Payable

0

 

 

 

Bank Loans Payable

0

 

 

 

Total Liabilities

 

$34,992

 

 

Owner’s Equity

(Net income increases this)

 

$904,912

 

 

Total Liabilities andEquity

 

$939,904

 

 


 

Actual Costs and Template for Requirement #5Use this page to answer this requirement.

Performance Reportfor March

Cost Item

Actual results

Flexible Budget Variance

Flexible Budget for 16,500 units

Sales VolumeVariance

Static Master Budget for 16,000 units

Sales Revenues

$381,950

 

 

 

$368,000

Direct Materialsused

$118,720

 

 

 

$115,200

Direct Labor

$45,600

 

 

 

$44,800

Electric Power

$38,454

 

 

 

$36,800

Indirect Labor

$49,360

 

 

 

$40,000

Supplies

$16,686

 

 

 

$11,200

Supervisionand other salaries

$37,858

 

 

 

$40,000

Maintenance

$8,925

 

 

 

$7,000

Insurance andpropertytax

$8,000

 

 

 

$8,000

Permits andlicense fees

$3,400

 

 

 

$3,400

Factory depreciation

$10,000

 

 

 

$10,000

Other Overheadexpenses

$8,650

 

 

 

$6,300

Total ProductionExpenses

?

 

 

 

$322,700

Total Selling  &AdministrativeExpenses

$39,867

 

 

 

$43,600

Total Expenses

?

 

 

 

$366,300

Operating Income

?

 

 

 

$1,700


 

 

 

REQUIREMENT 6  (SPACE FOR REPORT)

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