ACCT-5012 - CASE STUDY

Fine Office Company

Fine Office Company makes office furniture for offices. They are in the process of preparing

a Master Budget including the Operating budget, Cash Statement, Income Statement

and Balance Sheet for 2023. The yearly budget is broken into quarters. The year end is

31st December 2023. Your group has been requested to compile a master budget for the

fiscal year 2023.

Package is to include the following budgets;

1. Sales budget for each quarter and for the year

2. Production budget for each quarter and for the year

3. Purchasing Budget for each quarter and for the year

4. Direct labour budget for each quarter and for the year

5. Manufacturing overhead budget for each quarter and for the year

6. Selling and Administration budget

7. Work sheets for Collections and Disbursements

8. Budgeted Income Statement

9. CVP Income Statement

10. Budgeted Cash Statement

11. Budgeted Balance Sheet

Additional details:

Fine Office Company produces two products P100 and P200

Sales price per P100 is $1,200

Sales price per P200 is $1,400

The value of P100 finished goods inventory at the end of 2022 is $360,000 and The value of P200 finished goods inventory at the end of 2022 is

At the end of each quarter, Fine Office Company requires ending inventory to be equal to 11% of the following quarters budgeted sales in units.

Each P100 unit uses 114 sq. ft. of steel during the manufacturing process. The cost of steel for 2023 is estimated to be

Each P200 unit uses 152 sq. ft. of steel during the manufacturing process.

Fine Office Company currently has 30,000 sq. ft. of steel in the beginning inventory. At

the end of each quarter, Fine Office Company wants to have 91,200 sq. ft. of ending

inventory.

Each product requires 2 machine hours and 7 direct labour hrs to produce.

Direct Labour costs $ 19.5 per direct labour hour.

Fine Office Company allocates manufacturing overhead costs based on the estimated machine

hours. Estimated manufacturing overhead cost for 2023 are $143,640 and are all variable.

For each quarter, it is estimated that 40% of sales will be cash and 60%

will be credit sales. Of the credit sales, 80% pay in the quarter of the sale and 20% pay in the

following quarter. Credit sales from Q4 2022 were $1,300,000

Direct labour costs and manufacturing overhead costs are paid for in cash in the quarter they

occurred.

Assume operating expenses occur evenly throughout the year and are all paid in cash.

For each quarter, 70% of material purchases are paid for in cash in the quarter of

the purchase and 30% are paid in the following quarter. Purchases of materials from

Q4 2022 were $1,500,000

Fine Office Company

Additional details continued:

Fine Office Company will pay $60,000 in dividends in Q4

Currently, the cash balance in the bank is $15,000. Fine Office Company wants to maintain a

minimum cash balance of $10,000 in the bank for each quarter.

Budgeted sales volumes year 2024 Q1:

P100 Q1 9804

P200 Q1 10488

Budgeted sales volumes are:

P100 Q1 10260 Q2 10944 Q3 11764 Q4

P200 Q1 12585 Q2 Q3 12312 Q4 13132

Selling and Administration expenses for the budgeted year are as follows:

Variable Cost:

Delivery costs are based on $0.30 per sales unit.

Commissions are based on 0.1 % of sales value.

Fixed Costs per quarter: $

Accounting & professional services 1600

Administrative & Sales Salaries 40000

Advertising 8000

Computer costs 3000

Depreciation 25000

Office Supplies 2000

Printing 2500

Insurance 1500

Property taxes 1000

Rent 12000

Utilities 3400

Total Fixed Costs 100000

Fine Office Company will purchase a new machine on 1/1/2023 worth $500,000 and will make two equal

payments. The first payment will be in Q1 and the second in Q4. Assume the machine was

purchased at the beginning of the year.

Taxation is 25% on taxable income and paid at the end of Q 4 each year (Ignore negative taxes).

Balance sheet information as at 31st December 2022 is as follows;

PPE $100,000 Accumulated Depreciation $100,000

Common Stock $580,000 Retained Earnings $145,000

For Cost of goods sold (COGS):

Add total costs of production + Beginning Finished goods - Ending Finished goods Inventory.

Interest of $9,000 on loans is paid in total at the end of the year and is a fixed cost.