Budget estimations The HOGWARTS company has an industrial activity. It manufactures in its workshops two types of finished products (small and large chopsticks) from two raw materials (elderwood and Phoenix feather powder). In September of year Y, Director Dumbledore hires you as a management controller and asks you to build the budget for year Y + 1. It provides you with the following forecast information. A.Sales The sales goals (in quantities) for years Y, Y+1 and Y+2 are the following: Y Y+1 Y+2 Small chopsticks 2,000 2,050 2,310 Large chopsticks 1,600 1,700 1,800 Unit sales prices, identical to those of year Y, are estimated at: Y+1 Small chopsticks 850 Large chopsticks 1,000 Based on previous years, it can be assumed that at the end of year Y + 1, 15% of sales will not be collected given the payment period granted to customers. It should also be noted that in order to be able to deliver its customers quickly, the company always keeps a stock of finished products corresponding to 10% of the expected sales of the following year, for both small and large baguettes of the period considered (here the year). The inventory valuation method used is the FIFO method. B.Production a.Direct production costs The production department estimated that for Y + 1 the quantities of raw materials necessary for the production of chopsticks would be: Y1 small chopsticks Large chopsticks Elderwood 1KG 1.8kg Phoenix feather powder 1 gram 1gram Forecasts for the unit purchase cost of raw materials are as follows: Y+1 Elderwood 8 per kg Phoenix feather powder 150 per gram For the Y + 1 budget, concerning the elderwood bought from the supplier Hagrid, it is estimated that 3 months (on average) of purchase, that is 25% of the amount of raw material purchases, will not yet be paid to the suppliers at the end of December, due to the payment deadline granted by this supplier. For Phoenix feathers, however, the supplier Lupine does not grant us any payment term. In addition, the Hogwarts company has stocks of Phoenix feather powder (which was purchased in year Y at the same unit price of 150 per gram), but no stocks of elderwood. The company wants to have in stock the quantity of feather powder necessary to produce 30% of the sales forecast of the following year. Production labour is considered a direct variable cost of production. Indeed, the Hogwarts company uses temporary workers (Hogwarts students) to adjust the need for labour to fluctuations in production. According to the operating schedule, reviewed by the production manager, Mr. Ollivander, the manufacturing duration for each of the two products are as follows: Y+1 Small chopsticks Large chopsticks Direct labour 15 hours 22 hours According to the director, the average hourly cost of production labour should be in year Y + 1 of 18.10 (including social charges). Salaries are paid within the month; therefore, there are no payment delays on salaries. b.Manufacturing overhead costs The cost of machines used in production is considered an overhead (indirect) charge as the machines are used for the production of the two finished products. In addition, this cost is considered fixed and corresponds to the depreciation expenses of the machines. The machines started to be operated on January 1 of year Y and their value is entered in the balance sheet. The depreciation of these machines is done on a straight-line basis over 5 years, with no residual value at the end of the depreciation period. The annual salary cost of the production manager, Mr. Ollivander, is also considered as an overhead fixed production charge and is estimated at 48,000 for the year Y + 1. These overhead fixed charges are used 60% for the production of small chopsticks and 40% for the production of large chopsticks. Disbursable charges are paid within the month. There are also variable overhead production costs. They are generated by the use of machines. For Y + 1, the estimated time related to the use of machines per finished product are as follows: Y+1 years Small chopsticks Large chopsticks Machine hours / finished product units produced 0.5 machine hour 0.75 machine hour These overhead variable production costs correspond to various maintenance products, lubrication and the energy required to operate the machines. In total, they are estimated at 23.5 per machine hour for year Y + 1. They are all paid during the month in which they are consumed. C.Non-manufacturing overhead costs A sales representative, Mac Gonagall, was hired by the company. His annual salary for Y + 1 is estimated at 150,000. In addition, the secretariat's salary is estimated at 80,000 for the same year. Two new vehicles will be purchased for the commercial service for an estimated amount of 300,000. The purchase will be made and paid for on year Y+1, July 1. The machines will be amortized on a straight-line basis over 5 years. Your predecessor had already prepared an estimate of the balance sheet at year Y, December 31 (in Euros). There were also some elements on his way of building it. ASSESTS Amounts Amont./Prov. Machine 1000000,00 200000,00 Total Fixed Assets. 800000,00 200000,00 Stocks PF. 213650,13 Stocks MP. 168750,00 Customer Receivables 495000,00 Availability. 5000,00 Total current Assets 882400,13 TOTAL. 1682400,13 LIABILITIES Amounts Stockholders equity 1500000,00 Retained earnings 35000,00 Result. 137640,13 Financial debts. 0,00 Total LT Liabilities 1672640,13 Suppliers payable 9760,00 Total current Liabilities 9760,00 TOTAL. 1682400,13 Fixed assets were depreciated during year N, linearly over 5 years with no residual value. The total fixed assets equals 1,000,000.00 - 200,000.00 = 800,000.00. It corresponds to the net book value. Part 2. Variance analyses A year later, the Hogwarts Company recorded the following accomplishments for year Y + 1: Small chopsticks Large chopsticks Actual quantity produced (units)* 2,000 1,500 Actual unit cost of elderwood 7.5 7.5 Actual unit cost of phoenix feather powder 155 155 Actual cost per hour of direct production labour 18.10 18.10 * Please note, to calculate the cost variance, it will therefore be necessary to consider the quantities to be produced from the production budget calculated in the Budget section Actual total quantities consumed Small chopsticks Large chopsticks Total elderwood raw material 2,200 kg 3,000 kg Total phoenix feather powder raw material 2,100 g 1,600 g Total direct production labour 33,000 h 35,000 h In addition, the sales data actually recorded for Y + 1 are as follows: Actual unit sales price Actual quantities sold (units) Small chopsticks 900 2,000 Large chopsticks 950 1,500 Finally, the market size that had been anticipated was 7,500 units. In reality, it was for Y + 1 of 6,500 units. Questions Each question is scored on 2 points. All questions relate to year Y + 1. Each time, we recommend that you detail your calculations: a correct result without calculation details will be considered false. On the other hand, a false result due to a calculation error but with a correct reasoning can bring you one part of the points. Enter your answers directly following the questions below. You can choose to insert tables or rather detail the calculations without using a table, the main thing being to make the calculations and the reasoning clear. Part 1. Budget estimations Q1. What amount of sales will be collected? Q2. What is the quantity to produce of small chopsticks and of large chopsticks? Q3. What is the total cost of raw materials consumed (used) for small chopsticks and for large chopsticks? Q4. What is the amount of direct production labour disbursement? Q5. What is the total amount of overhead production costs for large chopsticks? Q6. What is the total amount of disbursement of non-manufacturing costs? Part 2. Variance analyses Q7. For small chopsticks, calculate the direct cost variances on level 2 (flexible-budget and sales-volume variances). Interpret the results obtained. Q8. Calculate the direct cost variances on level 3 for large chopsticks (price and efficiency variances). Interpret the results obtained. Q9. Calculate the revenue variances on level 3 (sales-mix and sales-quantity variances) for the two finished products. Interpret the results obtained. Q10. Calculate the revenue variances on level 4 (market-size and market-share variances). Interpret the results obtained