Sep 26, 2017 term paper 2

MANNY FOLD_BUDGET PROJECT

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Manny Fold_Budget Project   REQUIRED: This project is worth 21 points. It is an opportunity to put together some of the things you

have 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 from

any of professor Milbrath’s, Professor Seltz’s, or Professor Yampuler’s sections of Acct. 2332. The

names, 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 member

below 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. We

must 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 at

6 PM.

1) GROUP MEMBERS:

NAME Blackboard Username Peoplesoft Number

 

 

YOUR RECEIPT NUMBER _______________ (lab assistants will give you this)

 

PROJECT FACTS

Manny Fold owns a factory that specializes in making titanium valves for high performance engines on

a just in time basis. Thus, Manny produces what he sells in a particular month. There are no

inventories of finished goods or work in process. However, Manny does require that an inventory of

direct raw materials equal to 20% of next month’s production requirement be available at the end of

each month. To build his business and gain new customers Manny has extended generous credit terms

to his customers. While Manny is confident about the fundamentals of his business, he is concerned

about 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 pound

of titanium alloy costing $9.60 per pound), $2.80 per valve for direct labor, and $5.50 per valve for

variable manufacturing overhead. Fixed manufacturing overhead is budgeted at $74,700 per month

during the 2nd quarter. The detailed components of variable and fixed overhead are as listed below. Second (group) project

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For variable overhead, electric power is budgeted at $2.30 per unit, indirect labor is budgeted at $2.50

per 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, property

tax and insurance combined are budgeted at $8,000 per month, maintenance is budgeted at $7,000 per

month, licensing fees and permits to use proprietary technology are budgeted at $3,400 per month, and

other 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 pay

eventually, but many of them take their time about doing so and Manny is reluctant to get tough with

them for fear they will take their business elsewhere. He tells you that all his sales are on credit (no

cash sales). He typically collects only 10% of sales in the month of the sale, 30% of sales in the month

after the sale and 60% of sales two months later (for example 10% of June sales would be collected in

June, 30% in July and 60% in August). On the other hand he must pay for 70% of his materials

purchases in the same month of the purchase and 30% in the month after. Cash costs of labor and

overhead other than depreciation, property taxes and insurance are paid in the same month they are

incurred. Property taxes and insurance are paid up through June 15. The amount due for the next 6

months (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 forwards

from a previous unsuccessful business venture. Therefore he does not expect to pay any income taxes

this 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 be

ready for use starting in July.

 

The budgeted selling price of valves for April, May, and June is $23 per valve. Because of market

competition there is not much flexibility to adjust the price and the price is expected to be stable during

the 2nd quarter of 2014. Manny budgeted sales in units for April at 17,000 units. For May he expects

to sell only 18,000 units. He is uncertain about sales for June and July. His high forecast for these two

months is 22,000 units for June and 20,000 for July. His low forecast is 19,000 units for June and

18,000 units for July.

 

Manny requires a minimum cash balance of $10,000 at the end of each month. If the budgeted month

end cash balance will fall below this level Manny plans to borrow enough cash at the beginning of that

same month to keep his ending balance up to the minimum level. Manny’s bank charges him interest at

the rate of ½ % per month on the balance outstanding during that month. Manny pays the interest at the

beginning of the following month and plans to repay as much as he can at the beginning of that month

without letting his budgeted cash balance go below $10,000 at month end. (On the budgeted income

statement round interest expense to the nearest dollar) Second (group) project

3

The company’s managerial accountant has resigned unexpectedly before the 2nd quarter budget could

be completed. You have been contracted to complete the master budget for June and for the 2nd

quarter (including some missing numbers from May). Balances as of March 31 for all relevant

accounts have already been calculated by this accountant together with some of the amounts for April

and 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 2nd

quarter. April and May have already been provided. Complete the template provided

below. Show any necessary calculations. You may use either the high forecast or the

low 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 materials

purchases in June and the total for the 2nd quarter (You will also have to complete the

budget for May) Complete the template provided which already has information for

April and May. (3 points)

3) Using the same forecast as you used in requirement 1 construct Manny’s cash budgets

for June and the total for the 2nd quarter (You will also have to provide the missing

number for May payments for purchases). Complete the templates provided below

which 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 budgeted

balance sheet at the end of June. Complete the template provided which already has the

March 31 balances. (3 points)

5) During March Manny actually produced and sold 16,500 valves. Actual sales revenues

were $381,950. Actual costs and the original March budget based on 16,000 valves

were as detailed in the table below. Complete the table by constructing a flexible

budget based on 16,500 valves and determining the variances for the performance

report. Your performance report should be similar to the performance report shown in

exhibit 10.13 of page 611 except your report includes more detailed production cost line

items. Use the template provided below for your answer. (5 points)

6) Write a brief report explaining some possible reasons why Manny’s profits were different

from the amount projected in the master budget for March (2 points).

 

 

 

 

 

 

Second (group) project

4

 

REQUIREMENT 1

Budgeted Income Statement

April May June 2nd Quarter

SALES

REVENUES

$391,000 $414,000

DIRECT MATERIALS

USED

($122,400) ($129,600)

DIRECT LABOR ($47,600) ($50,400)

VARIABLE

OVERHEAD

($93,500) ($99,000)

CONTRIBUTION

MARGIN

$127,500

FIXED OVERHEAD ($74,700) ($74,700)

FIXED OPERATING

EXPENSES ($43,600) ($43,600)

OPERATING

INCOME

$ 9,200

INTEREST EXPENSE $0

NET INCOME $9,200 Second (group) project

5

REQUIREMENT #2 BUDGETED PURCHASES OF TITANIUM ALLOY (direct material)

April May June 2nd Quarter

Valves to be

produced 17,000 18,000

X Pounds per

unit

0.75 0.75

Titanium to be

used 12,750 13,500

Desired ending

inventory

(20%)

2,700

Pounds of

Titanium

Needed

15,450

 

 

Less Beginning

Inventory 2,550 2,700

Pounds to be

purchased 12,900

Cost per pound $9.60

Cost of

Purchases $123,840

 

REQUIREMENT #3

COMPUTATION OF CASH COLLECTIONS

April May June 2nd Quarter

Sales Made 2

Months Ago $213,900 $220,800

Sales Made 1

Month Ago $110,400 $117,300

Sales Made this

Month $39,100 $41,400

Total Cash

Collections $363,400 $379,500

 

 

 

Second (group) project

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COMPUTATION OF CASH PAYMENTS

April May June 2nd Quarter

Payments for purchases

of materials $121,680

Payments for direct

Labor $47,600 $50,400

Payments for Variable

Overhead $93,500 $99,000

Payments for Fixed

Overhead $56,700 $56,700

Payments for Property

Taxes and Insurance

$0 $0

 

 

Payments for other

operating expenses $37,600 $37,600

Capital Expenditures $0 $0

Total Cash Payments $357,080

 

 

April May June 2nd Quarter

Beginning

Balance of Cash $10,324 $16,644

Cash Collections $363,400 $379,500

Total cash

available $373,724 $396,144

Less: Cash

Payments $357,080

Ending Cash

Balance Before

Financing:

$16,644

Borrowings

$0

Repayments

$0

Interest

Payments

$0

End Cash

Balance $16,644

COMBINED CASH BUDGETSecond (group) project

7

 

 

REQUIREMENT #4: BUDGETED BALANCE SHEET FOR JUNE 30

 

March 31 June 30

ASSETS:

Current Assets

 

Cash $10,324

Accounts Receivable $545,100

Inventory (raw materials) $24,480

Prepaid Insurance and

Property Taxes $20,000

Total Current Assets $599,904

 

Equipment and Furniture $880,000

Accumulated Depreciation

($540,000)

Equipment & Furniture (net) $340,000

Total Assets $939,904

 

LIABILITIES AND EQUITY

Liabilities (all current)

Accounts Payable $34,992

Interest Payable 0

Bank Loans Payable 0

Total Liabilities $34,992

Owner’s Equity

(Net income increases this) $904,912

Total Liabilities and Equity $939,904

Second (group) project

8

Actual Costs and Template for Requirement #5

Use this page to answer this requirement.

Performance Report for March

Cost Item Actual results Flexible

Budget

Variance

Flexible

Budget for

16,500 units

Sales Volume

Variance

Static Master

Budget for

16,000 units

Sales Revenues $381,950

 

$368,000

Direct Materials

used

$118,720 $115,200

Direct Labor $45,600 $44,800

Electric Power $38,454 $36,800


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