ACCT-5012 - CASE STUDY Group

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 2021. The yearly budget is broken into quarters. The year-end is 31st December 2021. Your group has been requested to compile a master budget for thefiscal year 2021.

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, 500

Sales price per P200 is 1,690

There are 800 units from P100 in finished goods inventory at the end of 2020 with a value of $ 360,000 and 500 units from P200 at the end of 2020 value 300,000. At the end of each quarter, Fine Office Company requires ending inventory to be equal to 9% of the following quarter's budgeted sales in units. The required ending inventory for Dec. 31, 2021 are 600 units for P100 and 400 units for P200

Each P100 unit uses150sq. ft. of steel during the manufacturing process. The cost of steel for 2021 is estimated to be $ 8 per sq. ft. Each P200 unit uses170sq. 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 120,000 sq. ft. of ending inventory.

Each product requires 12 machine hours and 6 direct labour hrs to produce.

Direct Labour costs $ 42 per direct labour hour.

Fine OfficeCompany allocates manufacturing overhead costs based on the estimated machine hours. Estimated manufacturing overhead cost for 2021 are$ 1,890,000and 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 2020 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 2020 were $1,500,000

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 are:

For P100

Q1 -12,900; Q2- 13,800 Q3- 13,500 Q4-14,400

P200

Q1- 15,480 Q2- 16,560 Q3- 16,200 Q4-17,280

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

Variable Cost: Delivery costs are based on$ 0.3 per sales unit.

Commissions are based on 0.1 % of sales value.

Fixed Costs:

Accounting & professional services- 3600

Administrative & Sales Salaries -140000

Advertising - 20000

Computer costs -9000

Depreciation - 70000

Office Supplies - 5000

Printing -3000

Insurance - 4000

Property taxes - 2000

Rent- 40000

Utilities - 3400

Total Fixed Costs 300000

Fine Office Company will purchase a new machine on 1/1/2021 worth $ 700000 and will make two equal payments. The first payment will be in Q2 and the second in Q4. Assume the machine was purchased at the beginning of the year.

Taxation is 30 % on taxable income and paid at the end of Q 4 each year.

Balance sheet information as at 31st December 2020 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 $ 9000 on loans is paid in total at the end of the year and is a fixed cost.