Enigma SARL has for many years manufactured quality leather goods. As a result of strong international competition, in 2012, for the first time in its history, the business made a loss. In response, the company decided to drastically reduce its product range and concentrate on its best selling and most profitable items. They hope to still benefit from economies of scale by producing and selling just 2 types of laptop case: San Tropez and Bordeaux.
Task:
From the following information, using the pro formas provided, create the budget for the year ended 31st December 2013.
Sales forecast
|
|
San Tropez
|
Bordeaux
|
|
Number of cases sold
|
40,000
|
25,000
|
|
Selling price per case
|
€80
|
€75
|
Standard production data
Enigma has 2 production departments: Cutting and Stitching.
Unit costs:
|
Direct labour rates
|
Raw materials
|
|
Cutting
|
Stitching
|
Leather
|
Zip fasteners
|
|
€12 per hour
|
€12 per hour
|
€6 per unit
|
€2 per unit
|
Product content
|
|
San Tropez
|
Bordeaux
|
|
Leather
|
2 units
|
4 units
|
|
Zips
|
1 unit
|
2 units
|
|
Cutting dept. labour
|
2 hours
|
1.5 hours
|
|
Stitching dept.labour
|
1 hour
|
0.5 hours
|
Production overheads
|
|
Cutting department
|
Stitching department
|
|
|
Fixed
|
Variable
|
Fixed
|
Variable
|
|
|
€
|
€
|
€
|
€
|
|
Indirect labour
|
56,000
|
-
|
24,000
|
-
|
|
Indirect materials
|
-
|
24,000
|
-
|
72,000
|
|
Maintenance
|
16,000
|
8,000
|
4,000
|
4,000
|
|
Rent of premises
|
48,000
|
-
|
8,000
|
-
|
|
Depreciation
|
64,000
|
-
|
16,000
|
-
|
|
Electricity
|
7,880
|
15,970
|
4,100
|
8,150
|
|
|
191,880
|
47,970
|
56,100
|
84,150
|
Marketing overheads Administration overheads
|
|
€
|
|
|
€
|
|
Salaries
|
224,000
|
|
Salaries
|
256,000
|
|
Advertising
|
192,000
|
|
Bank charges
|
40,000
|
|
Other
|
16,000
|
|
Other
|
33,200
|
|
|
432,000
|
|
|
329,200
|
Inventory forecast
|
|
Raw materials
|
Completed cases
|
|
|
Leather
(units)
|
Zips
(units)
|
San Tropez
(units)
|
Bordeaux
(units)
|
|
Opening inventory
|
48,000
|
8,000
|
800
|
8,000
|
|
Closing inventory
|
64,000
|
16,000
|
8,800
|
4,000
|
The unit cost of a completed case for both San Tropez and Bordeaux in the opening inventory is €55.
Receivables and payables
Raw materials, labour, all overheads and interest on a loan will be paid in full through the bank and cash accounts. Receivables and payables at 1st January 2013 will pay and be paid during 2013. Receivables and payables at 31st December 2013 are expected to be €480,000 and €120,000 respectively. One year's interest on the loan is paid during the year.
Non-current tangible assets
There are no disposals during 2013 but some new equipment will be acquired, on cash terms, for €160,000 just before the end of 2013
Expected statement of financial position (balance sheet) at 1st January 2013
|
|
Cost
€
|
Depreciation
to date
€
|
Net book value
€
|
|
Non-current assets
Tangible
Current assets
Inventory
Receivables
Bank and cash
|
1,920,000
|
720,000
788,000
423,000
200,000
|
1,200,000
1,411,000
2,611,000
|
|
Shareholder's equity
Ordinary shares
Retained profit
Long-term liabilities
10% bank loan
Current liabilities
Payables
|
|
|
700,000
801,000
1,501,000
1,000,000
110,000
2,611,000
|
ENIGMA SARL - PRO FORMAS
1. Sales budget year end 31st December 2013
|
|
Units
|
Selling price
|
Revenue
|
|
San Tropez
Bordeaux
|
|
€80
€75
|
|
|
|
|
|
|
2. Production budget year end 31st December 2013 (in units)
|
|
San Tropez
|
Bordeaux
|
|
Planned sales
Planned closing inventory
|
|
|
|
Total required
Planned opening inventory
|
|
|
|
Budgeted production
|
|
|
3. Direct materials usage budget year end 31st December 2013
|
San Tropez
|
Bordeaux
|
|
|
Material content (units/case)
|
Production Number of cases
|
Usage units
|
|
Material content (units/case)
|
Production Number of cases
|
Usage units
|
|
Leather
Zips
|
2
1
|
|
|
|
4
2
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Cost/unit
|
Total usage units
|
Total material costs
€
|
|
Leather
Zips
|
€6
€2
|
|
|
|
|
|
|
|
4. Direct materials purchase budget year end 31st December 2013 (in units)
|
|
Leather
|
Zips
|
|
Material usage
Planned closing inventory
|
|
|
|
Total required
Planned opening inventory
|
|
|
|
Budgeted purchases
Cost per unit
Budget purchase cost
|
€6
|
€2
|
5. Direct labour hours budget year end 31st December 2013
|
|
Labour content in product
(hours)
|
Cases produced
|
Total labour hours
|
Rate per hour
|
Total labour costs
|
|
Cutting dept
San Tropez
Bordeaux
Stitching dept
San Tropez
Bordeaux
|
2
1.5
1
0.5
|
|
|
€12
€12
€12
€12
|
|
|
|
|
|
|
|
|
6. Production overheads budget year end 31st December 2013
|
|
Cutting department
(expected 127,500 direct labour hours)
|
Stitching department
(expected 58,500 direct labour hours)
|
|
|
Fixed costs
|
Variable costs
|
|
Fixed costs
|
Variable costs
|
|
Indirect labour
Indirect materials
Maintenance
Rent of premises
Depreciation
Electricity
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Absorption rate per direct labour hour
|
|
|
|
|
|
| |
|
|
|
|
|
|
7. Standard budget unit cost of production for year end 31st December 2013
|
|
San Tropez
|
Bordeaux
|
|
|
Unit cost
|
Units in product
|
Cost
€
|
Units in product
|
Cost
€
|
|
Direct Material
Leather
Zips
Direct Labour
Cutting
Stitching
Variable Overhead
Cutting
Stitching
|
|
|
|
|
|
|
Total variable cost
Fixed overhead
Cutting
Stitching
|
|
|
|
|
|
|
Total standard cost
|
|
|
|
|
|
| |
|
|
|
|
|
|
8. Closing inventory budget at 31st December 2013
|
|
Units
|
Unit cost
€
|
Total cost
€
|
|
Direct materials
Leather
Zips
Finished products
San Tropez
Bordeaux
|
|
|
|
|
|
|
|
|
9. Cost of sales budget for year end 31st December 2013
|
|
€
|
€
|
|
Direct materials budget (3)
Direct labour (5)
Production overheads (6)
|
|
|
|
Add opening inventory
San Tropez
Bordeaux
|
|
|
|
Less closing inventory (8)
San Tropez
Bordeaux
|
|
|
|
|
|
|
10. Marketing and Administration expenses budget for year end 31st December 2013
|
|
€
|
€
|
|
Marketing expenses
Salaries
Advertising
Other
|
|
|
|
Administration expenses
Salaries
Bank interest
Other
|
|
|
|
|
|
|
11. Budget statement of comprehensive income for the year ended 31st December 2013
|
|
€
|
|
Sales (1)
Less cost of sales (9)
|
|
|
Gross profit
|
|
|
Less Marketing and admin expenses (10)
Less interest on bank loan
|
|
|
Budget net profit
|
|
12. Cash Budget for the year ended 31st December 2013
|
|
€
|
€
|
|
Opening cash balance
Add receipts
Sales
Add opening receivables
|
|
|
|
Less closing receivables
|
|
|
|
Total cash available
Less payments
Purchases
Add opening payables
|
|
|
|
Less closing payables
|
|
|
|
Direct labour (5)
Factory overheads less depreciation (6)
Marketing and admin expenses (10)
Bank loan interest
Fixed asset purchase
|
|
|
|
Budget closing balance
|
|
|
13. Budget statement of financial position at 31st December 2013
|
|
Cost
€
|
Depreciation
to date
€
|
Net book value
€
|
|
Non-current assets
Tangible
Current assets
Inventory
Receivables
Bank and cash
|
|
|
|
|
|
|
|
|
|
Shareholder's funds
Ordinary shares
Retained profit
|
|
|
|
|
Long-term liabilities
10% bank loan
Current liabilities
Payables
|