Class End of Term Group Project – Managerial Accounting 621.
Individual Case Study 2 Master Budget, Cash Budget and Budgeted Income Statement
After two years study at UCW, you finally graduate and start a job as Junior accountant at Bigdream Inc. Your manager is responsible for the nationwide distribution of creator design sets. Because of the new social media influence among current generation, the company has grown rapidly, and the prompt growth forces the management team to improve their efficiency and manage their production effectively.
You have just been given responsibility for all planning and budgeting of the entire lighting set division. Today is your first day, you have just given an assignment to prepare master budget for the manager, who needs to present the budget and discuss the financial objectives with the shareholders tomorrow. During your job interview, you clearly stated that you gained managerial accounting knowledge and hand on experience during your MBA study.
Your first assignment is to prepare a master budget for the next fiscal year, starting January 1, 2021. Your co-work has left a pile of files on your desk including the past sale records, product information, manufacture schedule and supplier pricing list. Now, you realized that you should have pay more attention during the lecture. Now, you don’t know where to start. Fortunately, you remember that you still kept a copy spreadsheet of the master budget template in your laptop from the accounting course.
Note: The company desires a minimum ending cash balance each month on $85,000. The Bigdream products are sold to retailers for $129 each and the sales have been in demand due to the Covid-19. However, the marketing department has been conservative toward the end of the year due market saturation. The marketing department has just sent you their forecasted quarter sales and marketing budget.
|
Quarter |
2021 Q1 |
2021 Q2 |
2021 Q3 |
2021 Q4 |
2022 Q1 |
2022 Q2 |
|
Sales in Unit |
30,000 |
35,000 |
40,000 |
55000 |
50000 |
55,000 |
|
Marketing Expenses |
$35,000 |
$20,000 |
$25,000 |
Ending finished goods inventories are supposed to be equal to 20% of the next month’s sales in units. Bigdream currently does its own assembly production in house. Each unit consists of 3 LED panels and the cost of each is $15. Each unit needs 0.10 labour hour from assemble to finish package. The hourly pay rate to the assembling workers is $15 per hour. The production manager also required desired direct material ending inventory to 30% of the next quarter production.
Purchases are paid for in the following manner: 50% in the quarter of the purchase and the remaining 50% paid in the quarter following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. The Bigdream has determined that only 50% of sales are collected by the end of the quarter in which the sale occurred. An additional 30% is collected in the quarter following the sale, and the remaining 20% is collected in the second quarter following the sale. Bad debts have been negligible, supporting the credit terms as favorable.
Below is a display of the Bigdream division monthly manufacture overhead and selling and administrative expenses:
Manufacture Overhead
Variable:
Indirect labour $5 per labour hour
Indirect Materials $2.00 per labour hour
Fixed:
Wages and Salaries $2,000 per month
Utilities $1,500 per month
Insurance $2,000 per month
Depreciation $2,000 per month
Selling and Administrative
Variable:
Sales Commissions $5 per unit
Fixed (Monthly):
Wages and Salaries $22,000
Utilities $6,000
Insurance $1,200
Depreciation $1,500
Miscellaneous $3,000
Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course). Bigdream will make a purchase of a parcel of land during the first quarter of 2021 for $50,000 cash. Bilo gdream’s balance sheet at the end of the fourth quarter is shown be w:
Assets
Cash $35,000
Uncollected Accounts receivable in Q4 this year: $200,000
Liabilities
Accounts payable $85,700
An agreement with Bank of the West allows Bigdream to borrow up to a total loan amount of $550,000. The interest rate on these loans is 12% annually (pretty high considering market rates) but the interest is not compounded, meaning this is simple interest only.
Required:
Prepare a master quarterly budget from Jan, 2021 to Dec, 2021. Include the following budget schedules and financial statements:
1) Master Budget
2) Cash Budget. Show the cash budget by month and in total.
3) Budgeted Income statement