ACCOUNTING FOR MANAGERS2
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 All About The Beard Inc.(AATB). Your manager is responsible for the national distribution of men grooming sets. Because of the new fashion style 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 men grooming 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 October 1, 2020. The office manager brought 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 rather than checking your social media page. 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 computer from the accounting course during your MBA study.
Note: The company desires a minimum ending cash balance each quarter on $35,000. The beard grooming products are sold to retailers for $20 each and the sales have been stagnant due to the Covid-19. However, the marketing department has been positive toward the end of the year due to season change and upcoming holiday. The marketing department has just sent you their forecasted quarter sales and marketing budget.
|Quarter||2020 Q4||2021 Q1||2021 Q2||2021 Q3||2021 Q4||2022 Q1|
|Sales in Unit||30,000||35,000||40,000||65000||68000||70,000|
The increased sales volume before and during June and January is due to Father’s Day and holidays with AATB being a favorite. Ending finished goods inventories are supposed to be equal to 20% of the next quarter’s sales in units. AATB currently does its own assembly production in house. Each unit consists of 3 shaves and the cost of each is $1.50. 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 AATB 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 AATB division monthly manufacture overhead and selling and administrative expenses:
Manufacture Overhead Variable:
Indirect labour $0.5 per labour hour
Indirect Materials $0.2 per labour hour
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 $1 per unit
Fixed (Monthly) : Wages and Salaries $22,000
Labour, Manufacture Overhead, and Selling and Administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course). AATB will make a purchase of a parcel of land during the first quarter of 2021 for $22,500 cash. AATB contributes to the corporate dividend at a rate of $12,000 each quarter, payable in the first month of the following quarter. AATB’s balance sheet at the end of the third quarter is shown below:
Assets Cash $14,000
Accounts receivable ($48,000 sales in Q2 and $152,000 in Q3 this year ) $200,000
Accounts payable $85,700
An agreement with Bank of the West allows AATB to borrow in increments of $1,000 at the beginning of each month, 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.
Prepare a master budget for twelve months from Oct, 2020 to Oct, 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
Hi All, Here are questions you have asked please my answer before.
1. We could not see any assignment-2 drop box in the UCW portal can u please update the assignment-2 drop box.
Submit online and submission link will be set up.
2. Do we need to do analysis quarterly or monthly?
3. The due date for 22nd September 2020 midnight or before the class?
4. if some of the calculations will be wrong in assignment 2, will you deduct marks for those or giving whole 0?
5. The assignment requirement is to prepare budgets on a quarterly basis including cash budget as you mentioned in class Quarterly
6. AATB’s balance sheet at the end of the first quarter is shown below- Should this be the opening balance
be equal to 20% of the next quarter’s sales in units
7. Ending finished goods inventories are supposed to be equal to 20% of the next month’s sales in units- Should this be 20% of next quarter’s sales in units
8. AATB will make a purchase of a parcel of land during the quarter of 2021 for $22,500 cash- Which quarter
The first Quarter
9. 5. The company desires a minimum ending cash balance each month on $35,000. – is it $35,000 minimum balance as at every quarter ending date
10. 6. AATB should only borrow money if the minimum cash budget is not maintained
11. Are we to assume no income tax since no figure is given
Not tax for this question and try to keep it simple
12. I need to know how to calculate ending desired material for the last quarter.
This is a question I would give answers as I mention in class. You should know if you pay attention during the lecture.
13. In the question, below sales commissions, it is mentioned monthly. Is it includes all like insurance, depriciation or not ? and we have to convert into quarterly ?
Yes There are some errors and I have corrected in the updated version. All the best,