Check Accounting Work- Master Operating Budget & Executive Summary

Executive Summary

Business decision making is always considered as a crucial part of any business especially when you are a new business or planning to launch a new product in the market. The same is going to happen in our company, Bottled Water Company. We are going to launch a new product and all the related analysis of projected numerical calculation is presented below. Basically, it is the explanation of master budget. Mater budget is defined as the aggregation of all the budgets which are produced by different parts of the company such as forecasting, financing plan, or financial statements (Tools, 2014). The numerical projection is based on the assessment for four (4) years so the intended users get the overview for considerable projected period. Here we are going to summarize it.

Sales Budget

Let us start with the projected sales budget.It explains that how many units a company is expecting to sell. The company is expecting to produce 40,000, 30,000, 50,000, and 55,000 units in first, second, third, and fourth year respectively. Therefore, the company is projecting to produce 175,000 units over the period of 4 years. The units expected to be sold out are estimated after assessing the in-depth market analysis regarding demand and any kind of vicissitudes in it as well. Such a fluctuation is expected in second year because of certain predicted issue.

Now, if we talk about selling price, so company is expecting it to sell for $1 per unit. The company is expecting to maintain the selling price of $1 for all four years because the market assessment shows that demand will increase over the period so there is no need to cut price in order to increase sales, therefore, company will accumulate $175,000 by the end of fourth year.

Production Budget

It explains that how many units will be produced by the company in order to meet the expected demand. In case of production budget, Bottled Water Company has planned to make sure that it produces 39,000 units in first year and 32,000, 50,500, and 55,500 in year second, third, and fourth respectively. The company will do this by adding 10% of budgeted sales of next quarter as desired units of ending finished goods inventory, along with subtracting 10% of budgeted sale of current quarter as desired units of beginning finished goods inventory.So, in total company will be able to produce 177,000 units which is 2000 units more than expected sales units. The company has decided to do this to spread fixed cost over extra units to get advantage of higher profit margins.

Material Purchase Budget

It explains that how many ounces will be used per unit at what cost. Company is expecting to utilize 20 ounce per unit and it costs $0.2 per unit. So, with the increase in production the variable cost will increase accordingly and it will cost $36,240 to produce 177,000 units over the period of four years. Besides, variable cost is expected to stay same during four years of the production.

Direct Labor budget

It explains that how many labor hours are needed at what cost to produce one unit. The same is case with labor budget like material budget. Here the cost per hour will remain the same over the period and just because of increase in producing units hours will increase thus labor costs.

Overhead Budget

It explains that what benefits and supplies are needed to produce the desired output. All of the overhead items will fluctuate over the period expect fixed cost which will stay fixed at $1,500 each year for continually four years.

Selling and admin expense budget

It explains that what kind of expenses sells related and admin related the company will incur in order to secure the revenue. Expect total fixed cost for selling and admin every cost is expected to increase over the period. It is increasing because of the increase in selling units.

Cost of Goods manufactured Budget

It explains that what components will be the part of cost of goods sold and how these components are calculated.The Bottled Water Company’s policy is to have no units in working process at the year end that is why Work in Process is not the component of the costs of goods sold. However, rests of the parts are general components like inventory and variable cost.

Budgeted Income Statement

This budget is one of the most important budgets and will decide if expected project will bring in economic benefit to the company or not.Here, company will see if it is going to earn profit from the venture or not. In case of Bottled Water Company, budget is presenting $60,490 net income over the period of four years which is 34% and that’s why this venture will definitely bring considerable economic benefit to the company.

Conclusion

The Bottled Water Company believes in doing prior research before entering in to any market which is new to it. This is the reason because of which company has performed detailed analysis and budgeting related to new product.To cut a long story short, it is very clear from the analysis and thoroughbudgeting that company will surely enjoy benefits from this venture if it works as assumed by budget preparers.Actually, projection is based on hypothetical assumption regarding the events which may happenbecause events are predicting or management expects it to happen (AICPA, 2001). So, we cannot 100% assure the same results.

References AICPA. (2001). Financial Forecast and Projection. Retrieved from AICPA: http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AT-00301.pdf Tools, A. (2014). Definitions. Retrieved from AccountingTool: http://www.accountingtools.com/master-budget