Manny Fold_Budget Project



SECOND (GROUP) PROJECTREQUIRED: This project is worth 21 points. It is an opportunity to put together some of the things youhave learned in different parts of this course. Read the case and answer the requirements below.For this project you may work together in groups of up to 3 people. Group members may come fromany of professor Milbrath’s, Professor Seltz’s, or Professor Yampuler’s sections of Acct. 2332. Thenames, usernames and Peoplesoft numbers of the group members must be written clearly below.If there is only one member in the group you should leave the rows for the second and third memberbelow blank. If there are two members you should leave just the third row blank.To receive credit you must write full answers, using the templates provided for each requirement. Wemust ask you to handwrite your answers and show any calculations you feel are needed.Hand your project in to the accounting lab 133MH during lab hours on or before Thursday April 24 at6 PM.1) GROUP MEMBERS:NAME Blackboard Username Peoplesoft NumberYOUR RECEIPT NUMBER _______________ (lab assistants will give you this)PROJECT FACTSManny Fold owns a factory that specializes in making titanium valves for high performance engines ona just in time basis. Thus, Manny produces what he sells in a particular month. There are noinventories of finished goods or work in process. However, Manny does require that an inventory ofdirect raw materials equal to 20% of next month’s production requirement be available at the end ofeach month. To build his business and gain new customers Manny has extended generous credit termsto his customers. While Manny is confident about the fundamentals of his business, he is concernedabout the possible income and cash flow implications.The variable costs of producing a valve are budgeted at $7.20 per valve for direct materials (3/4 poundof titanium alloy costing $9.60 per pound), $2.80 per valve for direct labor, and $5.50 per valve forvariable manufacturing overhead. Fixed manufacturing overhead is budgeted at $74,700 per monthduring the 2nd quarter. The detailed components of variable and fixed overhead are as listed below. Second (group) project2For variable overhead, electric power is budgeted at $2.30 per unit, indirect labor is budgeted at $2.50per unit, and supplies are budgeted at $.70 per unit. For fixed overhead depreciation is budgeted at$10,000 per month, Supervision and other factory salaries are budgeted at $40,000 per month, propertytax and insurance combined are budgeted at $8,000 per month, maintenance is budgeted at $7,000 permonth, licensing fees and permits to use proprietary technology are budgeted at $3,400 per month, andother miscellaneous fixed overhead expenses are budgeted at $6,300 per month.Manny’s customers drive a hard bargain because they can easily switch suppliers. They all do payeventually, but many of them take their time about doing so and Manny is reluctant to get tough withthem for fear they will take their business elsewhere. He tells you that all his sales are on credit (nocash sales). He typically collects only 10% of sales in the month of the sale, 30% of sales in the monthafter the sale and 60% of sales two months later (for example 10% of June sales would be collected inJune, 30% in July and 60% in August). On the other hand he must pay for 70% of his materialspurchases in the same month of the purchase and 30% in the month after. Cash costs of labor andoverhead other than depreciation, property taxes and insurance are paid in the same month they areincurred. Property taxes and insurance are paid up through June 15. The amount due for the next 6months (starting June 16) must be paid in early June.All of the selling and administrative expenses are fixed. Monthly fixed selling and administrative costs,other than interest, amount to $43,600, of which $6,000 is depreciation. These operating costs,excepting depreciation, are paid in cash in the month incurred. Manny has large tax loss carry forwardsfrom a previous unsuccessful business venture. Therefore he does not expect to pay any income taxesthis year. (In other words you may ignore income taxes).Manny plans to buy new equipment costing $80,000 during the month of June. This equipment will beready for use starting in July.The budgeted selling price of valves for April, May, and June is $23 per valve. Because of marketcompetition there is not much flexibility to adjust the price and the price is expected to be stable duringthe 2nd quarter of 2014. Manny budgeted sales in units for April at 17,000 units. For May he expectsto sell only 18,000 units. He is uncertain about sales for June and July. His high forecast for these twomonths is 22,000 units for June and 20,000 for July. His low forecast is 19,000 units for June and18,000 units for July.Manny requires a minimum cash balance of $10,000 at the end of each month. If the budgeted monthend cash balance will fall below this level Manny plans to borrow enough cash at the beginning of thatsame month to keep his ending balance up to the minimum level. Manny’s bank charges him interest atthe rate of ½ % per month on the balance outstanding during that month. Manny pays the interest at thebeginning of the following month and plans to repay as much as he can at the beginning of that monthwithout letting his budgeted cash balance go below $10,000 at month end. (On the budgeted incomestatement round interest expense to the nearest dollar) Second (group) project3The company’s managerial accountant has resigned unexpectedly before the 2nd quarter budget couldbe completed. You have been contracted to complete the master budget for June and for the 2ndquarter (including some missing numbers from May). Balances as of March 31 for all relevantaccounts have already been calculated by this accountant together with some of the amounts for Apriland May. You may assume that these balances and amounts shown in the tables below are correct.REQUIREMENTS:1) Construct Manny’s budgeted income statement for June and the total for the 2ndquarter. April and May have already been provided. Complete the template providedbelow. Show any necessary calculations. You may use either the high forecast or thelow forecast for this budget. Choose either the high or the low.(4 points)2) Using the same forecast as in requirement 1 construct Manny’s budget for raw materialspurchases in June and the total for the 2nd quarter (You will also have to complete thebudget for May) Complete the template provided which already has information forApril and May. (3 points)3) Using the same forecast as you used in requirement 1 construct Manny’s cash budgetsfor June and the total for the 2nd quarter (You will also have to provide the missingnumber for May payments for purchases). Complete the templates provided belowwhich already have information for April and May. Show any necessary calculations.(4 points)4) Using the same forecast as you used in requirement 1 construct Manny’s budgetedbalance sheet at the end of June. Complete the template provided which already has theMarch 31 balances. (3 points)5) During March Manny actually produced and sold 16,500 valves. Actual sales revenueswere $381,950. Actual costs and the original March budget based on 16,000 valveswere as detailed in the table below. Complete the table by constructing a flexiblebudget based on 16,500 valves and determining the variances for the performancereport. Your performance report should be similar to the performance report shown inexhibit 10.13 of page 611 except your report includes more detailed production cost lineitems. Use the template provided below for your answer. (5 points)6) Write a brief report explaining some possible reasons why Manny’s profits were differentfrom the amount projected in the master budget for March (2 points). Second (group) project4REQUIREMENT 1Budgeted Income Statement April May June 2nd QuarterSALESREVENUES$391,000 $414,000DIRECT MATERIALSUSED($122,400) ($129,600)DIRECT LABOR ($47,600) ($50,400)VARIABLEOVERHEAD($93,500) ($99,000)CONTRIBUTIONMARGIN$127,500FIXED OVERHEAD ($74,700) ($74,700)FIXED OPERATINGEXPENSES ($43,600) ($43,600)OPERATINGINCOME$ 9,200INTEREST EXPENSE $0NET INCOME $9,200 Second (group) project5REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material) April May June 2nd QuarterValves to beproduced 17,000 18,000X Pounds perunit 0.75 0.75Titanium to beused 12,750 13,500Desired endinginventory(20%)2,700Pounds ofTitaniumNeeded15,450Less BeginningInventory 2,550 2,700Pounds to bepurchased 12,900Cost per pound $9.60Cost ofPurchases $123,840REQUIREMENT #3COMPUTATION OF CASH COLLECTIONS April May June 2nd QuarterSales Made 2Months Ago $213,900 $220,800Sales Made 1Month Ago $110,400 $117,300Sales Made thisMonth $39,100 $41,400Total CashCollections $363,400 $379,500 Second (group) project6COMPUTATION OF CASH PAYMENTS April May June 2nd QuarterPayments for purchasesof materials $121,680Payments for directLabor $47,600 $50,400Payments for VariableOverhead $93,500 $99,000Payments for FixedOverhead $56,700 $56,700Payments for PropertyTaxes and Insurance$0 $0Payments for otheroperating expenses $37,600 $37,600Capital Expenditures $0 $0Total Cash Payments $357,080 April May June 2nd QuarterBeginningBalance of Cash $10,324 $16,644Cash Collections $363,400 $379,500Total cashavailable $373,724 $396,144Less: CashPayments $357,080Ending CashBalance BeforeFinancing:$16,644Borrowings $0Repayments $0InterestPayments$0End CashBalance $16,644COMBINED CASH BUDGETSecond (group) project7REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30 March 31 June 30ASSETS:Current AssetsCash $10,324Accounts Receivable $545,100Inventory (raw materials) $24,480Prepaid Insurance andProperty Taxes $20,000Total Current Assets $599,904Equipment and Furniture $880,000Accumulated Depreciation ($540,000)Equipment & Furniture (net) $340,000Total Assets $939,904LIABILITIES AND EQUITYLiabilities (all current)Accounts Payable $34,992Interest Payable 0Bank Loans Payable 0Total Liabilities $34,992Owner’s Equity(Net income increases this) $904,912Total Liabilities and Equity $939,904 Second (group) project8Actual Costs and Template for Requirement #5 Use this page to answer this requirement.Performance Report for MarchCost Item Actual results FlexibleBudgetVarianceFlexibleBudget for16,500 unitsSales VolumeVarianceStatic MasterBudget for16,000 unitsSales Revenues $381,950 $368,000Direct Materialsused$118,720 $115,200Direct Labor $45,600 $44,800Electric Power $38,454 $36,800Indirect Labor $49,360 $40,000Supplies $16,686 $11,200Supervision andother salaries$37,858 $40,000Maintenance $8,925 $7,000Insurance andproperty tax$8,000 $8,000Permits andlicense fees$3,400 $3,400Factorydepreciation$10,000 $10,000Other Overheadexpenses$8,650 $6,300Total ProductionExpenses? $322,700Total Selling &AdministrativeExpenses$39,867 $43,600Total Expenses ? $366,300OperatingIncome? $ 1,700 Second (group) project9REQUIREMENT 6 (SPACE FOR REPORT)


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