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

In january 2013 mitzu co pays 2650000 for a tract of land

In January 2013, Mitzu Co. pays $2,650,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $823,50 ...

Accounting systems and assurance assessment internal

Accounting Systems and Assurance Assessment: Internal Control and information quality Accounting students learn how to process, analyse and use accounting information. It is also necessary to learn what contributes to th ...

Assignmentpigskin must decides how many footballs to

Assignment Pigskin must decides how many footballs to produce each month for 6-month planning horizon. Monthly demand must be satified on time. Set a model to determine the production plan for next 6 months which incurs ...

Maher inc reported income from continuing operations before

Maher Inc. reported income from continuing operations before taxes during2014 of $790,000. $790,000 Additional transactions occurring in 2014 but not considered in the $790,000 are as follows. 1. The corporation experien ...

Kent cpa is a staff auditor participating in the audit

Kent, CPA is a staff auditor participating in the audit engagement of Fort, Inc. Based upon each of the circumstances below, indicate whether or not Kent's actions impair his independence. Explain your response for each ...

Analyze tootsie rolls 2015 consolidated statements of

Analyze Tootsie Roll's 2015 Consolidated Statements of Earnings and Retained Earnings. Discuss the relevance for a manufacturer of reporting a gross profit amount. Then calculate or report the 2015 Gross Profit Rate (%) ...

Assignemntselect a research issue problem or opportunity

Assignemnt Select a research issue, problem, or opportunity that could benefit from hypothesis testing. It may be an issue related to your work or it may a more global type of problem. Develop a research hypothesis that ...

Taskyou are required to complete all questions in the same

Task You are required to complete all questions, in the same sequence as listed below, and submit all workings. Follow the assignment requirements (refer below to the Requirements section above) very closely. Question 1 ...

Exercise 1north company has completed all of its operating

Exercise 1 North Company has completed all of its operating budgets. The sales budget for the year shows 50,120 units and total sales of $2,128,200. The total unit cost of making one unit of sales is $22. Selling and adm ...

International accounting1 tax jurisdiction and double

INTERNATIONAL ACCOUNTING 1. Tax Jurisdiction and Double Taxation Basis for taxation come from three common bases for taxation...they are source, citizenship, and residence. (Fill in the blanks below) a. The citizenship b ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen