A. Review the financial information in the case study. Create spreadsheets and enter your data for the following:

1. Prepare the sales budget by month and in total.

2. prepare schedule of expected cash collections from sales by month and in total.

3. Prepare merchandise purchase budget in dollars by month and in total.

4. Prepare schedule of expected cash disbursements for merchandise purchases by month and in total.

5. Prepare selling and administrative budget by month and in total.

6. Prepare schedule of expected cash disbursements for selling and administration by month and in total.

7. Prepare cash budget by month and in total.

8. Prepare budgeted income statement (pro forma) for the three-month period ending September 30th using the absorption costing approach.

9. Prepare master budget balance sheet (pro forma) as of September 30th.

II. Reporting

A. Analyze Data

1. Briefly summarize each department budget and note any large variances.

2. Explain two variances that might cause concern or prompt further analysis.

B. Executive Brief Presentation

1. Create executive briefing presentation in which you briefly summarize all budgets. Include all supporting documentation as addendums to the

Data

Summative Case Study: SRS Educational Supply Company

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 company's 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

Submission Requirements for Final Project I:

As the accountant, the company has asked you to perform the following tasks:

1. Prepare overview diagram of the job-costing system at the SRS Educational Press.

2. Prepare journal entries to summarize the 2017 transactions. As your final entry, dispose

of the year-end under- or overallocated manufacturing overhead as a write-off to cost of

goods sold. Number your entries. Explanations for each entry may be omitted.

3. Show posted T-accounts for all inventories, Cost of Goods Sold, Manufacturing

Overhead Control, and Manufacturing Overhead Allocated.

4. How did the SRS Educational Press perform in 2017? Should the company continue to

have in-house press production?

You will submit your answers/explanations for Final Project I in a memo-style format to the

company's leadership team. Use Microsoft Word and Excel.

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 company's balance sheet at June 30 is given below:

Assets Liabilities & Stockholders' Equity

Cash $ 40,000 Accounts payable $ 130,000

Accounts receivable 340,000

Inventory 50,000 Capital stock 420,000

Prepaid insurance 18,000 Retained earnings 758,000

Building & equip. (net) 860,000 Total liabilities &

Total assets $ 1,308,000 stockholders' equity $ 1,308,000

The company's income statement for the year ending June 30 is given below:

Sales $ 5,523,000

Cost of goods sold 2,541,000

Gross margin

Selling and administrative expenses

Shipping $ 249,000

$ 2,982,000

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 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 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 week's 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 month's cost of

merchandise sold. The company's 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 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 company's 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 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 month's 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 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 PowerPoint presentation that

will serve as an executive brief to the organization's 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