Budgeting Control

COURSE NAME: BUDGETING & CONTROL Task brief & rubrics

Task

This is Master Budget Case:

· Individual task

· You must answer all the questions.

· When solving problems, you must clearly explain all the steps you are doing, and why are you making those steps.

· Show all your workings, a numeric answer is not enough.

· You should submit a document in Excel format showing all calculations.

Formalities:

· Use one page per answer.

· Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

· Font: Arial 12,5 pts.

· Text alignment: Justified.

Submission: Week (9) – Via Moodle (Turnitin). Sunday March 28th at 21:59 via Moodle Turnitin.

It assesses the following learning outcomes:

· Estimate sales.

· Develop production and cost budgets

· Develop budgeted financial statements

· Understand the planning process and it´s advantages

Case:

You are working as a financial advisor for Mr. Wealthy, who is a well-known investor. Today Mr. Wealthy has explained to you a new business project that he has, and he wants you to prepare projected financial statements to have an idea of the profitability of the project.

Following we have the data that Mr. Wealthy has delivered to you:

Sales: The expected sales are 10.000.000 units, when the market is fully developed, we will need a period of five years in order to achieve that level. He expects to sale 20% on the first year, 40% on the second year, 60% on the third year, and so on until achieving 100% on the year 5.

The sales price per unit is 3.99 per unit.

Direct materials: The recipe of the product explains that direct material will have a cost of 0.853€ per unit.

Production labor: The first year the plant needs 4 technicians with a cost of 34580€ per person per year, 32 production workers with an annual cost of 26.600€ per employee per year, and 4 managers with a cost of 44954€ per person per year. The next years the production labor will increase, due to the fact that the production of the plant will also be increasing. The year 2 the cost will be 6.25% higher than year 1, the year 3 the cost will be 12.5% higher than year 1, the year 4 the cost will be 18.75% higher than year 1 and in year 5 the cost will be 25% higher than year 1.

Investment: the required investment is 12.461.717€, of which 10.000.000 will be depreciated over a period of 10 years and the rest will be depreciated over a period of 3 years. No more investments will be required during the years 2 until 5.

Utilities expense: We expect a cost of 0.20€ per unit per year.

Quality control: the control will be outsourced, and we expect a cost of 3% of our sales per year.

General and administration costs are expected to be 192.000 for the first year. For the following years the cost should increase in line with the sales volume, having a cost of 2.4% of sales.

The days to collect accounts receivable are 60, the days to pay suppliers are also 60.

The company will need an inventory of 30 days.

Mr. Wealthy is ready to invest 3.669.000€. The investments need to be paid upfront and the rest of money needed will come from a bank credit line, you should make your own estimation of the amount needed.

The tax rate is 25% and the interest rate is 5%.

Mr. Wealthy is requesting from you a proposal of Profit & loss account for the next 5 years and a balance sheet for the same period.

Rubrics

	Descriptor
9-10	The student demonstrates an excellent understanding of the concepts.
8-8.9	The student demonstrates a good understanding of the concepts.
7-7.9	The student demonstrates a fair understanding of the concepts.
6-6.9	The student demonstrates some, but insufficient understanding of the concepts.
3-5.9	The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.
1-2.9	The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.
0	The student leaves the question blank or cheats.