7-2 Final Project II Submission

Final Submission: Final Project II Submission In Module Seven, you will submit your final project. You will compile the department budgets, master budget, and an overview of the budgeting process in an executive brief presentation. Based on the performance analysis of the companys press division, you will prepare a memo for the companys leadership team to explain the performance level of the press division and whether it should continue operations. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course.

Final Project II Rubric Guidelines for Submission: Your Final Project II submission is an organizational financial analysis report, which is your choice of a 12- to 15-page Microsoft Word document OR a 12- to 15-slide Microsoft PowerPoint presentation (excluding title page and references list):

Word Document: If you submit a Word document, it should be double spaced, with 12-point Times New Roman font and one-inch margins, and it should use the latest guidelines for APA formatting for references and citations. Include your name, course number and course name, and report title on the title page. Upload your Final Project II Student Workbook with any edits based on instructor feedback as a separate addendum.

PowerPoint: If you submit a PowerPoint presentation, it should include speaker notes (in addition to slide bullet points for each budget) that briefly summarize each of the budgets and the two variances. Upload your Final Project II Student Workbook with any edits based on instructor feedback as a separate addendum.

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Part 1 Job Order Costing / Process Costing

SRS Educational Supply Company provides educational materials and supplies to educational institutions. The company provides educational supply needs that includes workbooks, classroom visual aids, instructor support materials, art supplies, lab supplies, and administrative office supplies. Since SRS Educational Supply Company consistently produces the same service to its customers, the company uses job order costing. The companys processing units are assigned costs. For example, the company will determine all of the costs associated with the sales/marketing in a certain period and divide the costs by the number of customers that the company currently has. The cost per customer then becomes a part of the inputs and its used to determine the cost of sales/marketing and the cost of each customer. Service industries often do not match directly the normal costing systems, but the same concepts can still be used to determine the costs per customer.

The SRS Educational Press is wholly owned by the Company. It performs the bulk of its work for the print materials that are sold to the customers. The press also publishes and maintains a stock of books for general sale. The press uses normal costing to cost each job. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead, allocated on the basis of direct manufacturing labor costs).

The following data (in thousands) pertain to 2017:

Direct materials and supplies purchased on credit: $800

Direct materials used: $710

Indirect materials issued to various production departments: $100

Direct manufacturing labor: $1,300

Indirect manufacturing labor incurred by various production departments: $900

Depreciation on building and manufacturing equipment: $400

Miscellaneous manufacturing overhead incurred by various production departments: $550

o (Ordinarily, this would be detailed as repairs, photocopying, utilities, etc.)

Manufacturing overhead allocated at 160% of direct manufacturing labor costs: ?

Cost of goods manufactured: $4,120

Revenues: $8,000

Cost of goods sold (before adjustment for under- or overallocated manufacturing overhead): $4,020

Inventories, December 31, 2016 (not 2017):

o Materials control: $100 o Work-in-process control: $60 o Finished goods control: $500

Part 2 Departmental and Master Budgets

SRS Educational Supply Company provides educational materials and supplies to educational institutions. The SRS business model is to be a one-stop provider of educational supply needs. For example, some of their product lines include educational workbooks, classroom visual aids, instructor support materials, art supplies, lab supplies, and administrative office supplies. While SRS serves all levels of educational institutions, the majority of their customers are K-12 schools. Sales can vary quite a bit from month-to-month as K-12 educational institutions have seasonal ordering patterns. Thus, budgeting is vital for planning and cash flow purposes. SRS has a June 30, fiscal year end.

The companys balance sheet at June 30 is given below:

Assets:

Cash $ 40,000

Accounts receivable 340,000

Inventory 50,000

Prepaid insurance 18,000

Building & equip. (net) 860,000

Total assets $ 1,308,000

Liabilities & Stockholders Equity:

Accounts payable $ 130,000

Capital stock 420,000

Retained earnings 758,000

Total liabilities & stockholders equity $ 1,308,000

The companys income statement for the year ending June 30 is given below:

Sales $ 5,523,000

Cost of goods sold 2,541,000

Gross margin $ 2,982,000

Selling and administrative expenses:

Shipping $ 249,000

Other 511,000

Salaries and wages 1,104,000

Advertising 685,000

Insurance 27,000

Depreciation 228,000

Total operating expenses 2,804,000

Net operating income $ 178,000

Interest expense 25,000

Net income $ 153,000

The following forecasts have been provided by the organization:

Sales forecasts range

July $550,000 - $650,000

August $900,000 - $980,000

September $450,000 - $550,000

October $360,000 - $420,000

November $350,000 - $480,000

December $350,000 - $480,000

Purchasing cost range (July December)

Cost of goods sold 42% - 50%

Operating expense range (July December)

Shipping 4% - 5% of sales

Other expenses 8% - 9.5% of sales

Salaries and wages $85,000 to $95,000 per month

Advertising $45,000 - $58,000 per month

Insurance $2,000 - $3,000 per month

Depreciation $25,000 per month

General Instructions for Master Budget Assignment

The company has four main departments: Sales, Purchasing, Operations and Finance. Based on the information provided about each department, you will create a master budget for the three month period beginning July 1 and ending September 30. You are responsible for creating a budget for each department that will become the master budget. The master budget must include the following detailed budgets:

A sales budget by month and in total

A schedule of expected cash collections from sales, by month and in total

A merchandise purchase budget in dollars. Show the budget by month and in total

A schedule of expected cash disbursements for merchandise purchases, by month and in total

A selling and administrative budget, by month and in total

A schedule of expected cash disbursements for selling and administration, by month and in total

A cash budget. Show the budget by month and in total

A budgeted income statement for the three-month period ending September 30

A budgeted balance sheet as of September 30

For grading purposes, you will be graded on the accuracy of the budgeted numbers. In addition, you will be graded on the accurate completion of the Budgeted Balance Sheet.

Additional Financial Information for the Sales Department

SRS has a large number of customers that are K-12 educational institutions. As a result, SRS receives large orders for educational supplies in July and August as schools get ready for the start of the academic year. This is also when educational budgets are still plentiful. Sales begin to decline in September and October and then monthly sales stabilize for the rest of the year (November June) to a range between $350,000 and $480,000.

Actual sales for June and your forecasted sales for the next four months are as follows:

June (actual) $455,000

July Likely Range: $550,000 - $650,000 (most likely outcome is $600,000)

August Likely Range: $900,000 - $980,000 (most likely outcome is $910,000)

September Likely Range: $450,000 - $550,000 (most likely outcome is $475,000)

October Likely Range: $360,000 - $420,000 (most likely outcome is $385,000)

As the accountant, your specific responsibility is to prepare a sales budget and a schedule of expected cash collections from sales by month and in total (July September).

Additional Financial Information for the Purchasing Department

Most of SRS clients expect a one to three-day turn-around time for orders. It typically takes a week for the company to get merchandise. As a result, the organization states that it has approximately a weeks worth of inventory on hand at all times. For budgeting purposes, the organization should plan to purchase enough merchandise during any one month to meet the sales projections for that month and to end the month with 20% of the next months cost of merchandise sold. The companys cost of merchandise sold ranges from 42% 50% of sales with the most likely outcome for next quarter (July September) of 45% of sales.

As the accountant, your responsibility is to prepare a merchandise purchase budget (in dollars) and a schedule of expected cash disbursements for merchandise purchases by month and in total (July September).

Additional Financial Information for the Operations Department

The Operations and Logistics Department of SRS Educational Supply Company secures advertising that supports the sales efforts, coordinate shipping and delivery of merchandise to clients and provide general administrative support to the other departments.

The organization has estimated the companys monthly operating expenses for the next quarter (July September) as follows:

Variable:

Shipping 4.0% to 5.0% of sales with 5% of sales the most likely outcome

Other expenses 8.0% to 9.5% of sales with 8% of sales the most likely outcome

Fixed:

Salaries and wages $85,000 to $95,000 with $85,000 the most likely outcome

Advertising $45,000 to $58,000 with $50,000 the most likely outcome

Insurance $2,000 to $3,000 with $3,000 the most likely outcome

Depreciation $25,000

As the accountant, you will prepare a selling and administrative budget and a schedule of expected cash disbursements by month and in total (July September).

Additional Financial Information for the Finance Department

The Accounting and Finance Department of SRS Educational Supply Company manages the accounts receivable and collections, accounts payable, general ledger, and handles the cash management, borrowing and investing activities of the company.

Historic collection data (cash collections of sales):

All sales are on credit, with no discounts, and due in 15 days.

The company has found, however, that only 30% of a months sales are collected by month-end and the remaining 70% is collected in the following month.

Historic payment data:

Purchases of inventory are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month.

Other operating expenses are paid in cash during the month they are incurred.

Other planned outlays of cash:

During July, purchases of automated equipment totaling $200,000 for cash.

New computers for the office will be purchased during August for $90,000 cash.

The company plans on declaring and paying dividends of $50,000 during July.

Cash management policies:

Desired minimum ending cash balance each month: $35,000

The company has a line of credit with a bank.

The company can borrow in increments of $1,000 at the beginning of each month.

The interest rate on these loans is 1% per month and we assume a simple interest calculation (not compounded).

At the end of each month, the company pays the bank as much of the loan as possible (increments of $1,000), while still retaining at least $35,000 in cash.

For simplicity, the company pays the bank the interest related to the borrowing for one month at the beginning of the next month. For example, the interest on any borrowing in June is paid in July.

As the accountant, you will prepare a cash budget by month and in total (July September) and a Budgeted Income Statement for the quarter ending September 30.

* Depreciation on newly acquired assets will be made as an adjustment at the end of the fiscal year.

Submission Requirements for Final Project II:

At this point, you should have a budget for each of the four departments. You will take the four departmental budgets and prepare the master budget. You will submit the four budgets and the master budget in one Excel file.

Then, using the budget project you just completed, you will create a PowerPoint presentation that will serve as an executive brief to the organizations leadership team. The presentation should include an overview of the budgets and the process for creating the budgets, and it should answer the questions listed below:

1. What were your goals for the master budget you created for July, August, and September?

2. What process did you use to create each of the four budgets? Did the budgeting process differ between different departments? Explain.