Ask Question, Ask an Expert


Ask Accounting Basics Expert

problem 1: Budgeting  
Your friend Peter is planning to set up a new business which will manufacture and sell wooden tables. The parts that make up the table consist of a wooden table top measuring 1m by 0.5m, four legs and 3m of trim. The wooden table top supplied by the vendor measures 1m by 1m and has to be cut into two halves before assembly. The legs are also supplied by the same vendor. The trim is supplied by another supplier and comes in rolls of 30m.
Peter knows you are a management accountant and has asked you to help him prepare a budget for his new business so that he knows whether he can make any profit in the first six months. The following is Peter’s plan and estimates:
The new business will begin operations on 1 Jan 2013.
Peter will put in $65,000 of his personal funds into the business and he has obtained a loan of $50,000 from a bank to be available on 1 Jan 2013. The loan interest is 5% per annum on the loan outstanding and interest is to be paid on the last day of each month. A principal payment of $1,000 will also be made at the end of each month.
Plant and machinery will be purchased on 1 Jan at a cost of $36,000, to be paid in three equal monthly installments interest free. The plant and machinery is to be depreciated on a straight line basis over 5 years. Office equipment will be purchased on 1 Jan at a cost of $30,000 to be paid in full in Feb. The office equipment will be depreciated on a straight line basis over 3 years.
Sales will start in Feb and Peter estimates that sales volume will be 400 units in Feb, increasing by 100 units every month until it reaches the production capacity of 1,000 units per month. Selling price is set at $145 per unit. 75% of the sales is expected to be on credit and the rest for cash. For the credit sales, Peter predicts that 60% will pay in the month following the sale, 30% in the second month following the sale and 10% in the third month of the sale.
Unit costs for the parts are:

Table top (1m by 1m)  $50
Leg (each)   $4
Trim (30m roll)  $100
Labour costs are:
Direct labour   1.5 hours per table
Direct labour rate  $30 per hour
Peter wishes to have an ending finished goods inventory equal to 20% of the sales requirements of the following month. The  ending inventory for table top and legs should equal 30% of the production requirement of the next month. As for trims, it should be 10% of the production requirement of the next month rounded down to the nearest roll. There are no WIP inventories. Terms on purchases are 40% cash on delivery (COD) and 60% payable in the next month. A 2% discount is available for COD payments. Discounts received are reported as “Other Income” in the income statement. The company follows the terms of payment to take advantage of the COD discount. Direct labour cost is paid one month in arrears.
Variable manufacturing overhead is estimated to be $2 per table. Fixed manufacturing overhead (excluding depreciation) is expected to be $6,000 per month. Variable selling & administration expenses are expected to be 5% of sales. Fixed selling & administration expenses (excluding depreciation) are budgeted to be $3,000 per month.
All manufacturing overhead and selling & administration expenses are paid in the month incurred.

The company uses absorption costing to determine its product cost.

Based on the information given, and ignoring GST and taxation, prepare the following from Jan to June 2013 for Peter’s company:
a) A monthly sales budget     
b) A monthly production budget     
c) A monthly purchase budget    
d) A monthly cash receipts budget   
e) A monthly cash disbursement budget for material purchase 
f) A monthly cash disbursement budget for other items including the payment of long term loan principal and interest 
g) A cash flow budget     
h) A budgeted income statement for the six months from 1 Jan to 30 June 2013  
i) A budgeted balance sheet as of 30 June 2013  
j) A budgeted movement of owner’s equity for the six months

problem 2: Performance measurement
Brabham Enterprises manufactures tires for  the Formula One motor racing circuit. For August 2011, Brabham budgeted to manufacture and sell 3,000 tires at a variable cost of $74 per tire and a total fixed cost of $54,000. The budgeted selling price was $110 per tire.  Actual results in August 2011 were 2,800 tires manufactured and sold at a selling price of $112 per tire. The actual total variable costs were $229,600 and the actual fixed costs were $50,000.

a) Prepare a performance report that uses a flexible budget and static budget showing the different variances between the actual and the static budget and the flexible budget      
b) Discuss the difference between a static budget and a flexible budget and comment on the results based on the performance report you have prepared for Brabham.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M91970

Have any Question? 

Related Questions in Accounting Basics

Excel formulas functions assignment depreciation

EXCEL FORMULAS / FUNCTIONS Assignment Depreciation Schedule Learning Objectives: 1. Creating Range Names 2. Creating variable Comments 3. Using Absolute and Relative References 4. Creating Formulas using following functi ...

Read the pcaob enforcement case against christopher e

Read the PCAOB enforcement case against Christopher E. Anderson (PCAOB Release No. 105-2008-003, available at Among the PCAOB's findings is that the audit partner, Anderson, changed materiality during the ...

1 k limited provided the following information as on

1. K Limited provided the following information as on 31.3.2009 Particulars Rs. Rs. Share capital: 2,50,000 equity shares of Rs. 10 each.   25,00,000 Profit & Loss a/c   3,50,000 Land & Building 12,00,000   Plant & Machi ...

Accounting theory and current issuesassignment

ACCOUNTING THEORY AND CURRENT ISSUES ASSIGNMENT QUESTION Bio-sustainable Feeds (BSF) Ltd., an Australian bio-research firm listed on the Australian Stock Exchange (ASX), has engaged research on sustainable aqua-culture f ...

1capstone project report word limit 3000 wordsthe report

1.Capstone Project Report (Word Limit: 3000 words) The report should show the followings: • Identification of the professional accounting, management and/or public relations issues in your workplace; • How do you applied ...

Classifying costs as materials labor or factory overhead

Classifying costs as materials, labor, or factory overhead Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead c ...

Question 1you own an automobile parts company and have been

Question #1 You own an automobile parts company and have been approached by a leading car manufacturer to supply parts to the company. How would you determine that the car manufacturer has a good record of servicing sale ...

According to the assignment requirement and the lecture

According to the assignment requirement and the lecture slides and tutorial questions, design a multiple choice question on ordinary income and statutory income from the individual point. 400 words. The QCQ must have a c ...

Practice questionsdistinguish betweennormal lossesabnormal

Practice questions: Distinguish between normal losses abnormal losses and explain their costing treatments.

Assignment - review of current accounting issuestask -in

Assignment - Review of Current Accounting Issues Task - In your accounting career you will be required to analyse current accounting issues and communicate your theoretical understanding to your professional colleagues a ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate