BUDGETING & CONTROL

HERA MANUFACTURING COMPANY

Hera Manufacturing Company: SALES

Background: These are the sales data of Hera. a winter sportwear manufacturer which manufacturers skis. You are Hera sales manager. You have to prepare a 12-month forecast for Year 5 in units and euros. You have the monthly unit sales data for the last 4 years; your average unit price to distributors has been 1D3 last year and you do not think it is possible to increase it. Cash collection is as follows: 80% of sales of month M are collected in M+1 19% of sales of month M are collected in M+2 1% of sales is never collected Im _-EIIE] IE! .35. m 1mm HMO 7.5ME (Starting in March.) Selling expenses Travel, meals and lodging of the 20 sales persons (Historical data indicate about 1KE/month.sales person) Advertising expenses: None in May to Aug. 100KE in Jan, Mar, Apr & Sept; 300KE in Feb and Oct; 500KE in Nov and Dec Promotions: Sell-in promotions of 50KE in Jun and Jul, of 60KE in Aug and Sell-out promotions of 500KE in Mar and Dec. Administrative salaries: 15 persons with average salary and benefits of 60KE/yr General management: Salaries &n benefits of the CEO (200KE), CMO (180KE), CFO (180KE) and a secretary (80KE) Shipping expenses: 150 per 100 pairs of skis Office rent: 240KE/yr Office utilities: Historical data indicate average monthly expenses of 1KE Telecom expenses: Fixed monthly expenses: 1KE; Variable expenses : 0.003E /Sales amount IT expenses: 65E per person employed (exluding CEO; CMO; CFO and secretary) Insurance: 80KE paid quarterly at the begining of quarterUnits [pairs of skis] ASP [e] Amount [] Desired ending inventory Needed quantity Begining Inventory Quantity to be produced Direct Material Budget [] Fiber glass Polymers Steel Plastic Glue Total Accounts payable Cash outow (2) Hera Manufacturing - Direct Material Budget Year 5 Jan Feb Mar Apr May Jun Jul Sep Oct Nov Year 6 Jan 30lski pair 5lski pair 7/ski pair 1/ski pair 1/ski pair 910000 910000 Inventory Fiber glass Polymers Steel Plastic Glue Direct Material Budget: 30 per pair of skis 5 per pair of skis 7 per pair of skis 1 per pair of skis 1 per pair of skis Cash disbursement: Suppliers are paid the amount of material used in month M in MM. Closing inventory on Dec. 31, Year 4 was 5'027 pairs of skis Accounts payable on Dec. 31, Year 4 were 910'000 Desired ending inventory = 20% of following month units forecast to be sold Hera Manufacturing - Direct Labor Budget Year 5 Year 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Units [pairs of skis] ASP [E] Amount [E] Desired ending inventory Needed quantity Begining Inventory Quantity to be produced Direct Labour expenses Direct salaries & benefits Direct labor overtime cost Direct supervision s&b Supervision overtime costs: Engineers' salaries & benefits Total Cash outflow (3) Direct Labour Expenses: Direct salaries & benefits: 56 workers with a fixed salary & benefits of 25KE/yr on average. A worker produces on average 25 pairs of skis per labor day. Direct labor overtime costs: 156 per overtime hour. 3 pairs of skis can be produced per hour. Direct supervision s&b: 8 foremen lead the 8 7-member teams. Each foreman costs 35KE/yr on average. Supervision overtime costs: 216 per overtime hour. Engineers' salaries & benefits: 2 engineers at 50KE/yr each. They maintain the 8 production lines, supervise the ski test process and ensure the material incoming inspectionHera Manufacturing - Manufacturing Overhead Budget Year 6 Jan Units [pairs of skis] ASP Amount [g] Desired ending inventory Needed quantity Begining Inventory Quantity to be produced Manufacturing Overhead Expenses [g] Depreciation of equipment F General Production Management s&b F Insurance F External services: Maintenance expenses: IT expenses Total Cash outow (5): Manufacturing Overhead Expenses: Depreciation of plant 8. equipment: Insurances: Plant Utilities: pa irs/month External services: Maintenance expenses: It expenses: General Production Management sb: 10% per year on plant and machinery worth 22M (not part of the cash outow) Salaries & benets of C00 [170\"), manufacturing accountant (SOKC), purchaser (90K), secretary (60K) 200Klyr paid In advance quarterly, starting In January Historical data indicate a monthly average of 50K for electricity, energy (fuel, gas) and water plus 10K when production runs over 29'400 Miscellaneous services from plumbing to recruiting agency. Historical data put these services at 5Klmonth Maintenance contracts are worth 250Klyr plus extras for special maintenance and repairs for 110K/yr (historical data) Updates and upgrades of software and hardware of IT equipment. Contracts and historical data indicate a monthly average of 10K. Hera Manufacturing - Production Budget Year 5 Year 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Units [pairs of skis] ASP Amount [E] Desired ending inventory Needed quantity Begining Inventory Quantity to be produced Direct Material Budget Direct Labor Budget [E] Manufacturing Overhead Budget [E] Unit cost = Total COGS = Inventory= Cash outflow (2) Cash outflow (3) Cash outflow (4) Cash outflow (5)Hera Manufacturing - Cash Budget Year 4 Year 5 Year 5 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Units [pairs of skis] 21.242 ASP 105 Amount 2.230.374 Opening cash balance Cash collection Cash inflow (1) Cash available S&A cash outflow Cash outflow (1) Production cash outflow Cash outflow (5) Equipment purchase Taxes Dividend Excess (deficiency) Minimum cash balance Interests on ST debt Interests on LT debt Borrowing Repayment Accumulated ST Borrowing Closing cash balance Cash budget elements: Minimum closing cash balance: 100'000E Opening cash balance: 389'1136 Equipment purchases: 1'800'000E in March and 1'900'000E in October Taxes: 900'000E in April and 1'200'000E in October Dividend: 500KE at each quarter starting in February Interests on ST debt: 12% per annum payable monthly Interests in LT debt: 6% per annum on 8ME paid at each quarter end, starting in MarchHera Manufacturing - Year 5 Pro Forma Income Statement Year 5 [E] Sales revenues COGS S&A expenses Operating profit Interests Eamings before tax Taxes Net EarningsHera Manufacturing - Year 5 Pro Forma Balance Sheet Balance sheet as of Dec. 31 of Year 5 Assets Liabilities E E Cash Accounts payable Accounts receivable Inventory Current assets Current liabilities Plant & machinery 22.000.000 Long term debt Plant & machinery = 22.000.000 Depreciation Equity 22.000.000 Land Net earnings Dividend Total assets 22.000.000 22.000.000 Plant & machinery as of Dec. 31 of Year 4: 22'000'000E Land value: 2'000'000 E Equity as of Dec. 31 of Year 4: 17'143'0796