Manny Fold_Budget Project

SECOND (GROUP) PROJECT 

REQUIRED: This project is worth 21 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, Professor Seltz’s, or Professor Yampuler’s 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 April 24 at 

6 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 20% 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 $7.20 per valve for direct materials (3/4 pound 

of titanium alloy costing $9.60 per pound), $2.80 per valve for direct labor, and $5.50 per valve for 

variable manufacturing overhead. Fixed manufacturing overhead is budgeted at $74,700 per month 

during the 2nd quarter. The detailed components of variable and fixed overhead are as listed below. Second (group) project 

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For variable overhead, electric power is budgeted at $2.30 per unit, indirect labor is budgeted at $2.50 

per unit, and supplies are budgeted at $.70 per unit. For fixed overhead depreciation is budgeted at 

$10,000 per month, Supervision and other factory salaries are budgeted at $40,000 per month, property 

tax and insurance combined are budgeted at $8,000 per month, maintenance is budgeted at $7,000 per 

month, licensing fees and permits to use proprietary technology are budgeted at $3,400 per month, and 

other miscellaneous fixed overhead expenses are budgeted at $6,300 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, 30% of sales in the month 

after the sale and 60% of sales two months later (for example 10% of June sales would be collected in 

June, 30% in July and 60% in August). On the other hand he must pay for 70% of his materials 

purchases in the same month of the purchase and 30% 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 June 15. The amount due for the next 6 

months (starting June 16) must be paid in early June. 

All of the selling and administrative expenses are fixed. Monthly fixed selling and administrative costs, 

other than interest, amount to $43,600, of which $6,000 is depreciation. These operating costs, 

excepting depreciation, are paid in cash in the month incurred. 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). 

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

ready for use starting in July. 

The budgeted selling price of valves for April, May, and June is $23 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 2nd quarter of 2014. Manny budgeted sales in units for April at 17,000 units. For May he expects 

to sell only 18,000 units. He is uncertain about sales for June and July. His high forecast for these two 

months is 22,000 units for June and 20,000 for July. His low forecast is 19,000 units for June and 

18,000 units for July. 

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 budgeted income 

statement round interest expense to the nearest dollar) Second (group) project 

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The company’s managerial accountant has resigned unexpectedly before the 2nd quarter budget could 

be completed. You have been contracted to complete the master budget for June and for the 2nd 

quarter (including some missing numbers from May). Balances as of March 31 for all relevant 

accounts have already been calculated by this accountant together with some of the amounts for April 

and May. You may assume that these balances and amounts shown in the tables below are correct. 

REQUIREMENTS: 

1) Construct Manny’s budgeted income statement for June and the total for the 2nd 

quarter. April and May 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 June and the total for the 2nd quarter (You will also have to complete the 

budget for May) Complete the template provided which already has information for 

April and May. (3 points) 

3) Using the same forecast as you used in requirement 1 construct Manny’s cash budgets 

for June and the total for the 2nd quarter (You will also have to provide the missing 

number for May payments for purchases). Complete the templates provided below 

which already have information for April and May. Show any necessary calculations. 

(4 points) 

4) Using the same forecast as you used in requirement 1 construct Manny’s budgeted 

balance sheet at the end of June. Complete the template provided which already has the 

March 31 balances. (3 points) 

5) During March Manny actually produced and sold 16,500 valves. Actual sales revenues 

were $381,950. Actual costs and the original March budget based on 16,000 valves 

were as detailed in the table below. Complete the table by constructing a flexible 

budget based on 16,500 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. (5 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 March (2 points). 

 Second (group) project 

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REQUIREMENT 1 

Budgeted Income Statement 

 April May June 2nd Quarter 

SALES 

REVENUES 

$391,000 $414,000 

DIRECT MATERIALS 

USED 

($122,400) ($129,600) 

DIRECT LABOR ($47,600) ($50,400) 

VARIABLE 

OVERHEAD 

($93,500) ($99,000) 

CONTRIBUTION 

MARGIN 

$127,500 

FIXED OVERHEAD ($74,700) ($74,700) 

FIXED OPERATING 

EXPENSES ($43,600) ($43,600) 

OPERATING 

INCOME 

$ 9,200 

INTEREST EXPENSE $0 

NET INCOME $9,200 Second (group) project 

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REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material) 

 April May June 2nd Quarter

Valves to be 

produced 17,000 18,000 

X Pounds per 

unit 

 0.75 0.75 

Titanium to be 

used 12,750 13,500 

Desired ending 

inventory 

(20%) 

2,700 

Pounds of 

Titanium 

Needed 

15,450 

Less Beginning 

Inventory 2,550 2,700 

Pounds to be 

purchased 12,900 

Cost per pound $9.60 

Cost of 

Purchases $123,840 

REQUIREMENT #3 

COMPUTATION OF CASH COLLECTIONS 

 April May June 2nd Quarter

Sales Made 2 

Months Ago $213,900 $220,800 

Sales Made 1 

Month Ago $110,400 $117,300 

Sales Made this 

Month $39,100 $41,400 

Total Cash 

Collections $363,400 $379,500 

 Second (group) project 

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COMPUTATION OF CASH PAYMENTS 

 April May June 2nd Quarter

Payments for purchases 

of materials $121,680 

Payments for direct 

Labor $47,600 $50,400 

Payments for Variable 

Overhead $93,500 $99,000 

Payments for Fixed 

Overhead $56,700 $56,700 

Payments for Property 

Taxes and Insurance 

$0 $0 

Payments for other 

operating expenses $37,600 $37,600 

Capital Expenditures $0 $0 

Total Cash Payments $357,080 

 April May June 2nd Quarter 

Beginning 

Balance of Cash $10,324 $16,644 

Cash Collections $363,400 $379,500 

Total cash 

available $373,724 $396,144 

Less: Cash 

Payments $357,080 

Ending Cash 

Balance Before 

Financing: 

$16,644 

Borrowings 

 $0 

Repayments 

 $0 

Interest 

Payments 

$0 

End Cash 

Balance $16,644 

COMBINED CASH BUDGETSecond (group) project 

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REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30 

 March 31 June 30 

ASSETS: 

Current Assets 

Cash $10,324 

Accounts Receivable $545,100 

Inventory (raw materials) $24,480 

Prepaid Insurance and 

Property 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 and Equity $939,904 

 Second (group) project 

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Actual Costs and Template for Requirement #5 

 Use this page to answer this requirement. 

Performance Report for March 

Cost Item Actual results Flexible 

Budget 

Variance 

Flexible 

Budget for 

16,500 units 

Sales Volume 

Variance 

Static Master 

Budget for 

16,000 units 

Sales Revenues $381,950 

 $368,000 

Direct Materials 

used 

$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 

Supervision and 

other salaries 

$37,858 $40,000 

Maintenance $8,925 $7,000 

Insurance and 

property tax 

$8,000 $8,000 

Permits and 

license fees 

$3,400 $3,400 

Factory 

depreciation 

$10,000 $10,000 

Other Overhead 

expenses 

$8,650 $6,300 

Total Production 

Expenses 

? $322,700 

Total Selling & 

Administrative 

Expenses 

$39,867 $43,600 

Total Expenses ? $366,300 

Operating 

Income 

? $ 1,700 

 Second (group) project 

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REQUIREMENT 6 (SPACE FOR REPORT)