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The following critical elements must be addressed when performing the Budget Variance Analysis using the Budget Variance Worksheet. The Budget Variance Worksheet can be found in the Assignment Guidelines and Rubrics folder. The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15. Step 1: Complete A. Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. Start with the Labor and Materials Variance tab. Standard costs/quantities come from the raw materials budget and the labor budget. Use Exhibits 23-11 on page 1416 and 23-12 on page 1419 in the textbook as guides. After completing the Labor and Materials Variance tab, transfer variances to the Budget Variance Report tab. Congratulations! You have completed the workbook portion of Final Project Part I. To complete the remainder of the Budget Variance Analysis portion of Final Project Part I, use the Final Project Part I Budget Variance Report Template. The Budget Variance Report Template can be found in the Assignment Guidelines and Rubrics folder. Sales Budget Peyton Approved Sales Budgets July, August, and September 2015 Budgeted Units Budgeted Unit Price Budgeted Total Dollars Jul-15 Aug-15 Sep-15 Total for the first quarter Production Budget Peyton Approved Production Budget July, August, and September 2015 July August Sept. Total Next month's budgeted sales Percentage of inventory to future sales Budgeted ending inventory Add budgeted sales Required units to be produced Deduct beginning inventory (Previous month ending inventory) Units to be produced Manufacturing Budget - contains raw materials budget, direct labor budget, and factory overhead budget Peyton Approved Raw Materials Budget July, August, and September 2015 July August Sept. Total Sept. Total Production budget (units) Materials requirement per unit Materials needed for production Add budgeted ending inventory Total materials requirements (units) Deduct beginning inventory (previous month ending inventory) Materials to be purchased Material price per unit Total cost of direct material purchases Peyton Approved Direct Labor Budget July, August, and September 2015 July August Budgeted production (units) Labor requirements per unit (hours) Total labor hours needed Labor rate (per hour) Labor dollars Peyton Approved Factory Overhead Budget July, August, and September 2015 July August Sept. Budgeted production (units) Variable factory overhead rate Budgeted variable overhead Fixed overhead Budgeted total overhead Selling Expense Budget Peyton Approved Selling Expense Budget July, August, and September 2015 July August Sept. Total Budgeted sales Sales commission percent Sales commissions expense Sales salaries Total selling expenses General and Administrative Expense Budget Peyton Approved General and Administrative Expense Budget July, August, and September 2015 July Salaries Interest on long-term note Total expenses August Sept. Total Total Peyton Approved Budget Variance Report For the Year Ended ... Actual Results Direct materials variances Cost/price variance Efficiency variance Total direct materials variance Direct labor variances Cost /price variance Efficiency variance Total direct labor variance Static Budget Variance Favorable/ Unfavorable Labor variance actual cost actual quantity standard cost actual quantity standard cost Materials variance actual cost standard quantity standard quantity You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. You will be preparing a budget for the quarter July through September 2015. You are provided the following information. The budgeted balance sheet on June 30, 2015, is: Peyton Approved Budgeted Balance Sheet 30-Jun-15 ASSETS Cash $42,000 Accounts receivable 259,900 Raw materials inventory 35,650 Finished goods inventory 241,080 Total current assets 578,630 Equipment $720,000 Less accumulated depreciation 240,000 480,000 Total assets $1,058,630 LIABILITIES AND EQUITY Accounts payable Short-term notes payable Taxes payable Total current liabilities Long-term note payable Total liabilities Common stock Retained earnings Total stockholders' equity Total liabilities and equity $63,400 24,000 10,000 97,400 300,000 397,400 $600,000 61,230 661,230 $1,058,630 All assumptions are new and apply to the July through September budget period. 1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit. 2. The June 30 finished goods inventory is 16,800 units. 3. Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. 4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. 5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. 6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead. 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable. 8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month. Specifically, the following critical elements must be addressed when creating an Operating Budget by completing the budget templates found on the "Budgets" tab below. Step 1: Prepare a Sales Budget Complete the Sales Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. Consider assumption 1 when completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit. You can find an example of a sales budget in Exhibit 22-5 on page 1324 of the textbook. Step 2: Prepare a Production Budget Complete the Production Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. Consider assumption 1 while completing this critical element: Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit. Consider assumption 2 while completing this critical element: The June 30 finished goods inventory is 16,800 units. Consider assumption 3 while completing this critical element: Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. You can find an example of a production budget in Exhibit 22-6 on page 1325 of the textbook. Step 3: Prepare a Manufacturing Budget Complete the Manufacturing Budget on the Budgets tab below by using the information found in the budgeted balance sheet above. The manufacturing budget consists of three parts: the Raw Materials Budget, the Direct Labor Budget, and the Factory Overhead Budget. Raw Material Budget Consider assumption 4 while completing this critical element: The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. Consider units to be produced found in the production budget while completing this critical element. Direct Labor Budget Consider assumption 5 while completing this critical element: Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. Consider units to be produced found in the production budget while completing this critical element. Factory Overhead Budget Consider assumption 6 while completing this critical element: Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead. Consider units to be produced found in the production budget while completing this critical element. Step 4: Prepare a Selling Budget Complete the Selling Expense Budget. Consider assumption 8 while completing this critical element: 8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month. Step 5: General and Administrative Expense Budget Complete the General and Administrative Expense Budget. Consider assumption 7 while completing this critical element: 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable. The following critical elements must be addressed when performing the Budget Variance Analysis using the Budget Variance Worksheet. The Budget Variance Worksheet can be found in the Assignment Guidelines and Rubrics folder. The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15. Step 1: Complete A. Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. Start with the Labor and Materials Variance tab. Standard costs/quantities come from the raw materials budget and the labor budget. Use Exhibits 23-11 on page 1416 and 23-12 on page 1419 in the textbook as guides. After completing the Labor and Materials Variance tab, transfer variances to the Budget Variance Report tab. Congratulations! You have completed the workbook portion of Final Project Part I. To complete the remainder of the Budget Variance Analysis portion of Final Project Part I, use the Final Project Part I Budget Variance Report Template. The Budget Variance Report Template can be found in the Assignment Guidelines and Rubrics folder. Sales Budget Peyton Approved Sales Budgets July, August, and September 2015 Budgeted Unit Price Budgeted Units Jul-15 Aug-15 Sep-15 18,000 22,000 20,000 $18.00 $18.00 $18.00 Budgeted Total Dollars $324,000 $396,000 $360,000 Total for the first quarter Production Budget Peyton Approved Production Budget July, August, and September 2015 July Next month's budgeted sales August Sept. Total 324,000 396,000 360,000 70% 70% 70% Budgeted ending inventory 15,400 14,000 16,800 46200 Add budgeted sales 18,000 22,000 20,000 60000 Required units to be produced 33,400 36,000 36,800 106200 Deduct beginning inventory (Previous month ending inventory) 16,800 15,400 14,000 46,200 Units to be produced 16,600 20,600 22,800 60,000 Percentage of inventory to future sales Manufacturing Budget - contains raw materials budget, direct labor budget, and factory overhead budget Peyton Approved Raw Materials Budget July, August, and September 2015 July August Production budget (units) Sept. Total 16,600 20,600 22,800 0.5 0.5 0.5 Materials needed for production 8,300 10,300 11,400 30,000 Add budgeted ending inventory 2,060 2,280 1,980 6,320 Total materials requirements (units) 10,360 12,580 13,380 36,320 Deduct beginning inventory (previous month ending inventory) 4,600 2,060 2,280 8,940 Materials to be purchased 5,760 10,520 11,100 27,380 $8.00 $8.00 $8.00 $24.00 $44,640 $81,530 $86,025 $212,195 Materials requirement per unit Material price per unit Total cost of direct material purchases 60,000 Peyton Approved Direct Labor Budget July, August, and September 2015 July August Sept. Total 16,600 20,600 22,800 0.5 0.5 0.5 8,300 10,300 11,400 $16 $16 $16 $132,800 $164,800 $182,400 Budgeted production (units) Labor requirements per unit (hours) Total labor hours needed Labor rate (per hour) Labor dollars Peyton Approved Factory Overhead Budget July, August, and September 2015 July August Sept. Budgeted production (units) 16,600 20,600 22,800 Variable factory overhead rate $1.35 $1.35 $1.35 Budgeted variable overhead 11,205 13,905 $15,390 Fixed overhead 20,000 20,000 20,000 $31,205 $33,905 $35,390 Total Budgeted total overhead Selling Expense Budget Peyton Approved Selling Expense Budget July, August, and September 2015 July Budgeted sales Sales commission percent Sales commissions expense Sales salaries Total selling expenses August Sept. Total $324,000 $396,000 $360,000 $1,080,000 12% 12% 12% 38,880 47,520 43,200 129,600 3,750 3,750 3,750 11,250 $42,630 $51,270 $46,950 $140,850 General and Administrative Expense Budget Peyton Approved General and Administrative Expense Budget July, August, and September 2015 July Salaries Interest on long-term note Total expenses August Sept. Total $12,000 $12,000 $12,000 $36,000 2,700 2,700 2,700 8,100 $14,700 $14,700 $14,700 $44,100 60,000 40,500 60,000 100,500 ACC 202 Final Project Part I Guidelines and Rubric Overview To be successful, all businesses must perform periodic assessments to determine the efficiency of operations. Whether you are an owner, a manager, or a frontline employee, at some time you will be affected by a budget. Preparing a budget and analyzing the results of operations in relation to the budget will help you understand how to use financial information to evaluate the effectiveness of an organization's operations. The process will also help you determine the reasons operations do not always go as planned and make decisions on changes that might need to be made to make the organization, or just your own department, more efficient. In Part I of the final project, you will use course-provided information to prepare an operating budget and compare actual operational results to the budgets, discussing potential reasons for any variances and areas to explore further. This variance analysis will allow you to make suggestions in Part II of the final project about potential changes to make your organization more efficient. You will have three deliverables for Part I of the assessment: a student worksheet, a budget variance worksheet, and a budget variance report. First, you will prepare a beginning operating budget for your company, using the student worksheet provided. Your budget will include different products with different costing methods, labor, overhead, and sales projections based on a desired profit margin. You will then compare your budget to actual results to determine and analyze variances. You will calculate and record the variances on the budget variance worksheet provided. Finally you will provide a brief written analysis of the variances and discuss additional information needed to determine their cause. This assessment addresses the following course outcomes: Communicate budget planning to internal stakeholders for strategic planning Apply costing methods to production for supporting budget planning and decision making Prompt You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. You will be preparing a budget for the quarter July through September 2015. You are provided the following information. The budgeted balance sheet at June 30, 2015, is: Peyton Approved Budgeted Balance Sheet 30-Jun-15 ASSETS Cash Accounts receivable $42,000 259,900 Raw materials inventory 35,650 Finished goods inventory 241,080 Total current assets Equipment 578,630 Less accumulated depreciation $720,000 240,000 Total assets 480,000 $1,058,630 LIABILITIES AND EQUITY Accounts payable $63,400 Short-term notes payable 24,000 Taxes payable Total current liabilities Long-term note payable 10,000 97,400 300,000 Total Liabilities Common stock Retained earnings 397,400 Total stockholders' equity $600,000 61,230 661,230 Total liabilities and equity $1,058,630 1. Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product's selling price is $18.00 per unit and its total product cost is $14.35 per unit. 2. The June 30 finished goods inventory is 16,800 units. 3. Going forward, company policy calls for a given month's ending finished goods inventory to equal 70% of the next month's expected unit sales. 4. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month's ending raw materials inventory to equal 20% of the next month's materials requirements. 5. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. 6. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead. 7. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable. 8. Sales representatives' commissions are 12% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,750 per month. Specifically, the following critical elements must be addressed: 1. Operating Budget Create an operating budget using the final project Part I student worksheet. a) Prepare a sales budget. Ensure accuracy of data. b) Prepare a production budget. Ensure the accuracy of your data. c) Prepare a manufacturing budget. Ensure the accuracy of your data. d) Prepare a selling expense budget. Ensure the accuracy of your data. e) Prepare a general and administrative expense budget using appropriate costing methods. 2. Budget Variance Analysis The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15. a) Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. Use the budget variance student worksheet provided. b) In your budget variance report, discuss each variance. What does the variance tell you? c) In addition, your budget variance report should cover: What needs to be investigated to determine the reason for the variance? Why? Final Project Part I Rubric Guidelines for Submission: Complete the Final Project Part I Student Worksheet and the Budget Variance Student Worksheet. Your budget variance report should be 1-3 pages, double-spaced, with one-inch margins, 12-point Times New Roman font, and APA format. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Operating Budget: Sales Budget Exemplary Proficient Prepares sales budget, and data is accurate (100%) Needs Improvement Prepares sales budget, but it contains some errors (55%) Not Evident Does not prepare a sales budget Operating Budget: Manufacturing Budget Prepares production budget, and data is accurate (100%) Prepares manufacturing budget, and data is accurate (100%) Prepares production budget, but it contains some errors (55%) Prepares manufacturing budget, but it contains some errors (55%) Does not prepare a production budget (0%) Does not prepare a manufacturing budget (0%) Operating Budget: Selling Expense Budget Prepares selling expense budget, Prepares selling expense budget, Does not prepare a selling and data is accurate but it contains some errors expense budget (100%) (55%) (0%) 12 Operating Budget: General and Administrative Expense Budget Prepares general and administrative expense budget and utilizes appropriate costing methods (100%) Develops a variance analysis that includes a budget variance performance report and appropriate variances for materials, labor, and overhead (100%) Discusses each variance and determines what variances inform (85%) 12 Operating Budget: Production Budget Budget Variance Analysis: Variance Analysis Budget Variance Analysis: Discuss Meets \"Proficient\" criteria and demonstrates awareness of the role of variances (100%) Prepares general and administrative expense budget, but does not utilize appropriate costing methods (55%) Develops a variance analysis that includes a budget variance report, but variances for materials, labor, and overhead are not appropriate (55%) Discusses each variance, but does not determine what variances inform (55%) Value 12 (0%) Does not prepare general and administrative expense budget (0%) Does not develop a variance analysis (0%) Does not discuss each variance (0%) 12 12 12 12 Budget Variance: Investigation Articulation of Response Meets \"Proficient\" criteria, and justification is well supported with examples Identifies what needs to be investigated to determine the reason for the variance and justifies response (100%) (85%) Submission is free of errors Submission has no major errors related to citations, grammar, related to citations, grammar, spelling, syntax, and organization spelling, syntax, or organization and is presented in a professional and easy-to-read format (100%) (85%) Identifies what needs to be investigated to determine the reason for the variance, but response lacks justification (55%) Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (55%) Does not identify what needs to be investigated to determine reason for variance (0%) Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 12 4 (0%) Earned Total 100%