I need help with question 2&3, just the numerical problems. Production Budget, Purchase Budget and Cash budgets.

IMA EDUCATIONAL Case Journal Case Study ima The Association of Accountants and Financial Professionals in Business ISSN 1940 204X Let's Go Aero Travel Trailers: Incorporating the New Model of the Organization into the Teaching of Budgeting Sally Wright University of Massachusetts Boston INTRODUCTION Let's Go Acto manufacturex travel trailers brought primurily by young families and retirees interested in a light, kw-cost trailer that can easily be pulled try a mid-sized family car. The market for travel trailers has expanded nicely over the past few years due to the number of families seeking a relatively low-cost, outdoor Vacation experience. But in the view of Let's Go Aen's president, Mark Newman, the real growth in the future is in the retince market. Newman believes the vigorous health of the average retiree, coupled with the national trend toward a return to nature, will translate into continuing sales growth for Let's Go As Newman loves to say, camping recently moved from number seven to number six on the list of top 10 leisure activities in the United States, and the baby boomers are getting older every day." THE RETIREE MARKET Baby boomers thorn between 1/1/46 and 1231/4) carry a lor of consumer clout According to the National Opinion Research Center at the University of Chicago 74 of boomen luged 47-65) wwn their own home. 16 are satisfied with their financial situation, and Share married. The spending power of this demographic is likely to increase People who are 50 years old and older ate expected to inherit an estimated $14 to $20 trillion dollars during the next twenty years. Also, baby boomers make up a significant part of the total 115 population According to the ISC Rotermin 300 baby boomets represented 26% of the populace. In that year there were just under 78 million boomets living in the United States, with the largest populations living in California, Texas, New York, Florida, and Pennsylvania Research indicates that for an organization to meet the moeds of the senior market, including baby boomers the following must be addressed Independence and control Intellectual stimulation and self-expression, Security and peace of mind. Quality and value Seniorespond to benefit-driven message to attract them, advertising has to communicate tangible benches rather than features and amenities MARKETING AND SALES The fotocasted increase in Let's Go's sales can be seen in the company sales projections presented in Exhibit actual for the years 2005 through 2010 and projected for the year 2011 through 2015). Although the weather can have a significant impact on the travel trailer industrybie.. hurricane season. Hooding and even droughts have had negative effects on the sales and rentals of travel trailers, Let Go's management believes these problems will be mitigated in the future by global warming. All sales projections are done by Mark Newman in his role as Let's Go's president. IMA EDUCATIONAL CASE OORNAL 1 VOL 4, NO. 1, ART 3 MARCH 2011 To keep from losing sales, the company maintains finished food inventory on hand at the end of each month equal to 300 trailers plus 20% of the next month'sules. The finished goods inventory on December 31, 2010, was budgeted to be 1.000 trailers Jim West. Let's Go vice president of marketing and sales, would rathet see a minimum finished goods inventory of no less than 1.500 trailers Jim refuses to talk to Tom Sloan Let's Go production manager. Tom is always trying to get Junto consideradopting teuble inventory levels, which Jim a certain wald affcct his carly bon. The vice president of sales and marketing is eligible for a bonus based on sale Unfortunately, Jim did not receive a bonus in 2010. Sales were up, but Mark refused to give Jim the bann, although it wa Carned, due to the high number of customer complaints Jim was really steamed when he had Didn't Mark know these complaints were for poor quality All of Jim's efforts to grow sales and attract customers were once again, destayed by Tom San and his production failurex TRAILER PRODUCTION contract, and her cfforts to locate an alternative vendor willing to accept the conditions of just in time contract have similarly failed. She blame Tom Sloan. Let's Got current aluminiu vendor refuses to sign a just-in-time prime vendor contract due to Tom's even production schedule and his refusal to pay on time Tom has been seen reading the help wanted ads, and Vicky wer heard him talking to an employment agency In keeping with the policy thy Tum Let's Got production managet the amount of sheet aluminum on hand at the end of each month must be equal to one-half of the following month's production needs for sheet aluminium The raw materials inventory on December 31, 2010, budgeted to be 39,000 yards. The company does keep track of work-in-process inventaris Budgeted expenses for Aluminither maten as well as water heat, light and pe equipment rental cuipment purchases, depreciation and selling and administrative for the first six months of 2011 given below 254.000 Aluminum Other materials Wages Hest light 8 power Equipment Equipment purchases Depreciation Seling & admin Joey February $875.000 56.000 SA DOO 54.000 4.000.000.000 1,134000 130.000 15.000 280.000 0.000 20.000 30.000 200.000 200.000 20.000 250.000 $200 400.000 100.000 000 Sheet aluminum represents the company's single most expensive raw material. Each travel trailer requires 30 squareyards of sheet aluminum. The wholesale cost of sheet aluminum varies dramatically according to the time of year. The cost per squareyard can vary from $1S in the spring when new construction tends to start to $8 in December and January, when demand is lowest The we of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel efficient, environmentally friendly vehicles Aluminum can provide a weight savings of up to 55% compared to an equivalent steel structure, improving gas mileage significantly. The aluminum industry and suppliers dispersed across four-tifths of the country, yet they are largely concentrated in fout region the Pacific Northwest industrial Midwest, northeastern scaboard, and mid-South Although this is a broad geographic presence, Let's Go Acto will be affected by distribution costs Vicky Draper, let's Go's vice president of purchasing and materials handling is cager to implement just-in-time as a way of lowering Let's Go aluminum con. To offset the expense of distribution. Let's Go is located in Pennsylvania Vicky's projected 20 bonus, recently announced by Mark und effective for year-end 2011, is based on her ability to lower total material cont. Initially enthusiastic about her job and ability to carn a significant bonus, Vicky has become discouraged and angry She is unable to convince Let's Go's current aluminum supplier to sign a prime vendor Aluminum Other materials Wages Heat light power Equipment real Equipment purchases Depreciation Selling & in April 9552.000 338.000 672.000 135.000 340.000 300.000 275.000 3.300 May 336.000 34.000 22.000 110.000 340.000 300.000 275.000 400.000 Sum 40.000 90 300 240.000 110.000 300.000 300.000 275.000 Accounts for aluminum and other materials we paid in full during the month following their purchase. Account payable for aluminum and other material purchased during December, 2010 totaled $850,000 combined. This amount will be paid in January 2011 IMA EDUCATIONAL CASE JOURNAL VOLAND 1.ART MARCH 2011 COMPETITION CASH All forms of vacation and leisure activities, including theme parks, beach or cabin rentals, health spas, resorts, and cruise Vacations compete with Let Go Aero Travel Trailers for the consumer dollar Other recreational purchases such as automobiles, snowmobiles, boats, and jet-skies are indirect competitors Travel trailer manufacturers such as Crossroads RW Jayen, Coachman RV, and Scamp also offer a moderate-toow-priced travel trailer Manufacturers that offer mere divene product lines such as high-end trailer with luxury accommodation could compete for the fairly aftuent senior market. Coachman RV, a direct let's Go competitor, has become leader in the recreational vehicle, motor home, and travel trailer industry through a commitment to quality and value based on excellence in etugineering and attention to detail Creative engineering, combined with high accuracy analysis, reduced material costs at Coachman by more than 60% and labor costs by 78 BUDGET PREPARATION Let's Got vice president of finance, Becky Newman, har requested an SW,000, 90 day loan from the bank at a yet to be determine interest rate. Since Lets Go has experienced difficulty in paying off its loans in the past, the box officer at the bank has asked the company to prepare a cash budget for the six months ending June 30, 2011, to support the requested loan amount. The cash balance on January 1, 2011 is budgeted at $100.000 (the minimum cash balance required by Let's Go's board of directors). HUMAN RESOURCES To accomplish the company's corpnte strategic grus, Let's Go Aem Travel Trailers encourages upward communication among all its employees from senior management to line employees Decision making although not an entirely democratic process is based on a team approach Newman, as Let's Go's president, chcourages manages to think in terms of the marketplace and took at the business of travel trails whole rather thuna functional department access and decision. In fact, Newman is committed to the idea of cooperative management and teamwork that he has hired three separate human resource consultants in the past six months to lead the company's managers chrough team-building exercises REQUIRED To minimize company time lost on clerical work. Let's Go's accounting department prepares and distributes all budgets to the various departments every six months. Per Mark Newman, "Freeing departmental managers from the budgeting process allows them to concentrate on more pressing matter." In keeping with the recently announced bons plan for the vice president of purchasing and materials handling. Newman has instructed the accounting department to budget aluminum at per square foot. The counting manager recently received a 205 bonus for having prepared the budgets on time with little or no help from the other functional acas. 1. Discuss the validity and reasonableness of let's Go's sale projections 2. Prepare production, purchasing and cash budgets for Let's Go for the first six months of 2011 using the formats below: Chint spreadsheet programs we wonderfull PRODUCTION BUDGET Jan Feb March April May June Six Months Budgeted Sales Add: desired ending inventory Total neede Less beginning inventory Trailer production IMA EDUCATIONAL CASE JOURNAL VOL 4, NO. 1, ART 3, MARCH 2011 PURCHASES BUDGET des Feb March June Si Month Trailer production Sheet metal needs per trailer Total production needs Add: desired ending inventory Total materials needs Less beginning inventory Total sheet metal purchases Cost per square yard Total cost TIL 5 $ $ $ $ " Jon Feb M April ! Sex Monte J CASH BUDGET Cash beginning balance Add cash collections Total cash available Lass cash disbursements 11 11 E. Total cash disbursements Excess deficiency Financing Borrowings Replyments Interest Total financing Cash balance ending -- - 1 $ $ $ $ S $ Discuss the advantages and disadvantages of the budgets you have prepared. Who in the company does the budget help and whom, potentially does it hurt. Dies the budget help or hurt the sales department? What about production and finance How are the various functional arca afected and why? 3. Andy Baxter, newly hired by Let's Go Aem from a competitor suggests preparing the production budget ming stable production Prepare a second and third set of peraduction, purchasing, and cash budgets. Hold production to a constant 3,000 miles per month for the secund sct of budgets, and 3.500 trailen per month for the third sct of budgets. The format for the purchasing and canh budgets should remain a printed in question 2 Use the following approach for the productie budget Decus the advantages and dates the second and thind acts of productie pachning, and cash budete you have prepared. When the company do these budgets help and shoes, potentiale do they hu De these hadgets helper hurt the sales department What about production and finance? How are the functional affected by IMA EDUCATIONAL CASE JOURNAL VOL 4, NO ART. 1, MARCH 2011 PRODUCTION BUDGET Feb 2.000 Aqil 2000 May 3.000 June 2.000 Six Month 12.000 3.000 2.000 Production trailers Add beginning inventory Total available Less budgeted sales Ending inventory - - - - EXHIBIT 1. ACTUAL AND PROJECTED SALES IN NUMBER OF TRAILERS Actual sales 2010 2232 15.91 2005 13,05 2011 20.000 2006 1 2012 32.500 2008 17.09 2014 $8.314 2009 19.534 2015 58,660 Projected sales 0120 4. What metric should Let's Got to measure the performance of each munager in this case? What ben system would you suggest that incorporates these cut and also encourages the manages to work as a team? The detail sales for 2010 (ctual and 2011 (projected by month are as follow 2010 2011 Actual Projecte January 2.500 February 3.218 4.000 March 3.581 5.000 April 2.240 1.000 May 1795 2.000 901 1.800 1,500 August 1.000 September 2.000 October 1578 2.000 November 1439 2.000 December 2.131 2.500 Total number of trailers 23.322 28.000 Actual sales in dollars for the last two months of 2010 and badpeted sales for the first six months of 2011 follow November 2010 actual $1,439,000 December 2010 (actual $2.131,000 January 2011 budgeted) $2.500,000 February 2011 (budgeted) $4,000,000 March 2011 budgeted $5,000,000 April 2011 budgeted $3,000,000 May 2011 (budgeted) $2.200,000 June 2011 (budgeted $1,100,000 Per cypericnce show that 25% of a month's sales ate collected in the month of sale. 10% in the month following the sale, and is in the second month following the sale. The remainder is uncollectible ABOUT IMA With a wide network of more than 60.000 professionals, IMA is the world's leading secunkration dedicated to cmpcring counting and finance professionals to drive beperformance. IMA provides a dynuma forum for professionals to advance their careers through Certified Management Accountant (CMA) certification, escarch pronal education, networking and advocacy of the Michest ethical and profesional standards. For more information about IMA, please visit www.monetom IMA EDUCATIONAL CASE JOURNAL VOL LLART 3 MARCH 2011 IMA EDUCATIONAL Case Journal Case Study ima The Association of Accountants and Financial Professionals in Business ISSN 1940 204X Let's Go Aero Travel Trailers: Incorporating the New Model of the Organization into the Teaching of Budgeting Sally Wright University of Massachusetts Boston INTRODUCTION Let's Go Acto manufacturex travel trailers brought primurily by young families and retirees interested in a light, kw-cost trailer that can easily be pulled try a mid-sized family car. The market for travel trailers has expanded nicely over the past few years due to the number of families seeking a relatively low-cost, outdoor Vacation experience. But in the view of Let's Go Aen's president, Mark Newman, the real growth in the future is in the retince market. Newman believes the vigorous health of the average retiree, coupled with the national trend toward a return to nature, will translate into continuing sales growth for Let's Go As Newman loves to say, camping recently moved from number seven to number six on the list of top 10 leisure activities in the United States, and the baby boomers are getting older every day." THE RETIREE MARKET Baby boomers thorn between 1/1/46 and 1231/4) carry a lor of consumer clout According to the National Opinion Research Center at the University of Chicago 74 of boomen luged 47-65) wwn their own home. 16 are satisfied with their financial situation, and Share married. The spending power of this demographic is likely to increase People who are 50 years old and older ate expected to inherit an estimated $14 to $20 trillion dollars during the next twenty years. Also, baby boomers make up a significant part of the total 115 population According to the ISC Rotermin 300 baby boomets represented 26% of the populace. In that year there were just under 78 million boomets living in the United States, with the largest populations living in California, Texas, New York, Florida, and Pennsylvania Research indicates that for an organization to meet the moeds of the senior market, including baby boomers the following must be addressed Independence and control Intellectual stimulation and self-expression, Security and peace of mind. Quality and value Seniorespond to benefit-driven message to attract them, advertising has to communicate tangible benches rather than features and amenities MARKETING AND SALES The fotocasted increase in Let's Go's sales can be seen in the company sales projections presented in Exhibit actual for the years 2005 through 2010 and projected for the year 2011 through 2015). Although the weather can have a significant impact on the travel trailer industrybie.. hurricane season. Hooding and even droughts have had negative effects on the sales and rentals of travel trailers, Let Go's management believes these problems will be mitigated in the future by global warming. All sales projections are done by Mark Newman in his role as Let's Go's president. IMA EDUCATIONAL CASE OORNAL 1 VOL 4, NO. 1, ART 3 MARCH 2011 To keep from losing sales, the company maintains finished food inventory on hand at the end of each month equal to 300 trailers plus 20% of the next month'sules. The finished goods inventory on December 31, 2010, was budgeted to be 1.000 trailers Jim West. Let's Go vice president of marketing and sales, would rathet see a minimum finished goods inventory of no less than 1.500 trailers Jim refuses to talk to Tom Sloan Let's Go production manager. Tom is always trying to get Junto consideradopting teuble inventory levels, which Jim a certain wald affcct his carly bon. The vice president of sales and marketing is eligible for a bonus based on sale Unfortunately, Jim did not receive a bonus in 2010. Sales were up, but Mark refused to give Jim the bann, although it wa Carned, due to the high number of customer complaints Jim was really steamed when he had Didn't Mark know these complaints were for poor quality All of Jim's efforts to grow sales and attract customers were once again, destayed by Tom San and his production failurex TRAILER PRODUCTION contract, and her cfforts to locate an alternative vendor willing to accept the conditions of just in time contract have similarly failed. She blame Tom Sloan. Let's Got current aluminiu vendor refuses to sign a just-in-time prime vendor contract due to Tom's even production schedule and his refusal to pay on time Tom has been seen reading the help wanted ads, and Vicky wer heard him talking to an employment agency In keeping with the policy thy Tum Let's Got production managet the amount of sheet aluminum on hand at the end of each month must be equal to one-half of the following month's production needs for sheet aluminium The raw materials inventory on December 31, 2010, budgeted to be 39,000 yards. The company does keep track of work-in-process inventaris Budgeted expenses for Aluminither maten as well as water heat, light and pe equipment rental cuipment purchases, depreciation and selling and administrative for the first six months of 2011 given below 254.000 Aluminum Other materials Wages Hest light 8 power Equipment Equipment purchases Depreciation Seling & admin Joey February $875.000 56.000 SA DOO 54.000 4.000.000.000 1,134000 130.000 15.000 280.000 0.000 20.000 30.000 200.000 200.000 20.000 250.000 $200 400.000 100.000 000 Sheet aluminum represents the company's single most expensive raw material. Each travel trailer requires 30 squareyards of sheet aluminum. The wholesale cost of sheet aluminum varies dramatically according to the time of year. The cost per squareyard can vary from $1S in the spring when new construction tends to start to $8 in December and January, when demand is lowest The we of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel efficient, environmentally friendly vehicles Aluminum can provide a weight savings of up to 55% compared to an equivalent steel structure, improving gas mileage significantly. The aluminum industry and suppliers dispersed across four-tifths of the country, yet they are largely concentrated in fout region the Pacific Northwest industrial Midwest, northeastern scaboard, and mid-South Although this is a broad geographic presence, Let's Go Acto will be affected by distribution costs Vicky Draper, let's Go's vice president of purchasing and materials handling is cager to implement just-in-time as a way of lowering Let's Go aluminum con. To offset the expense of distribution. Let's Go is located in Pennsylvania Vicky's projected 20 bonus, recently announced by Mark und effective for year-end 2011, is based on her ability to lower total material cont. Initially enthusiastic about her job and ability to carn a significant bonus, Vicky has become discouraged and angry She is unable to convince Let's Go's current aluminum supplier to sign a prime vendor Aluminum Other materials Wages Heat light power Equipment real Equipment purchases Depreciation Selling & in April 9552.000 338.000 672.000 135.000 340.000 300.000 275.000 3.300 May 336.000 34.000 22.000 110.000 340.000 300.000 275.000 400.000 Sum 40.000 90 300 240.000 110.000 300.000 300.000 275.000 Accounts for aluminum and other materials we paid in full during the month following their purchase. Account payable for aluminum and other material purchased during December, 2010 totaled $850,000 combined. This amount will be paid in January 2011 IMA EDUCATIONAL CASE JOURNAL VOLAND 1.ART MARCH 2011 COMPETITION CASH All forms of vacation and leisure activities, including theme parks, beach or cabin rentals, health spas, resorts, and cruise Vacations compete with Let Go Aero Travel Trailers for the consumer dollar Other recreational purchases such as automobiles, snowmobiles, boats, and jet-skies are indirect competitors Travel trailer manufacturers such as Crossroads RW Jayen, Coachman RV, and Scamp also offer a moderate-toow-priced travel trailer Manufacturers that offer mere divene product lines such as high-end trailer with luxury accommodation could compete for the fairly aftuent senior market. Coachman RV, a direct let's Go competitor, has become leader in the recreational vehicle, motor home, and travel trailer industry through a commitment to quality and value based on excellence in etugineering and attention to detail Creative engineering, combined with high accuracy analysis, reduced material costs at Coachman by more than 60% and labor costs by 78 BUDGET PREPARATION Let's Got vice president of finance, Becky Newman, har requested an SW,000, 90 day loan from the bank at a yet to be determine interest rate. Since Lets Go has experienced difficulty in paying off its loans in the past, the box officer at the bank has asked the company to prepare a cash budget for the six months ending June 30, 2011, to support the requested loan amount. The cash balance on January 1, 2011 is budgeted at $100.000 (the minimum cash balance required by Let's Go's board of directors). HUMAN RESOURCES To accomplish the company's corpnte strategic grus, Let's Go Aem Travel Trailers encourages upward communication among all its employees from senior management to line employees Decision making although not an entirely democratic process is based on a team approach Newman, as Let's Go's president, chcourages manages to think in terms of the marketplace and took at the business of travel trails whole rather thuna functional department access and decision. In fact, Newman is committed to the idea of cooperative management and teamwork that he has hired three separate human resource consultants in the past six months to lead the company's managers chrough team-building exercises REQUIRED To minimize company time lost on clerical work. Let's Go's accounting department prepares and distributes all budgets to the various departments every six months. Per Mark Newman, "Freeing departmental managers from the budgeting process allows them to concentrate on more pressing matter." In keeping with the recently announced bons plan for the vice president of purchasing and materials handling. Newman has instructed the accounting department to budget aluminum at per square foot. The counting manager recently received a 205 bonus for having prepared the budgets on time with little or no help from the other functional acas. 1. Discuss the validity and reasonableness of let's Go's sale projections 2. Prepare production, purchasing and cash budgets for Let's Go for the first six months of 2011 using the formats below: Chint spreadsheet programs we wonderfull PRODUCTION BUDGET Jan Feb March April May June Six Months Budgeted Sales Add: desired ending inventory Total neede Less beginning inventory Trailer production IMA EDUCATIONAL CASE JOURNAL VOL 4, NO. 1, ART 3, MARCH 2011 PURCHASES BUDGET des Feb March June Si Month Trailer production Sheet metal needs per trailer Total production needs Add: desired ending inventory Total materials needs Less beginning inventory Total sheet metal purchases Cost per square yard Total cost TIL 5 $ $ $ $ " Jon Feb M April ! Sex Monte J CASH BUDGET Cash beginning balance Add cash collections Total cash available Lass cash disbursements 11 11 E. Total cash disbursements Excess deficiency Financing Borrowings Replyments Interest Total financing Cash balance ending -- - 1 $ $ $ $ S $ Discuss the advantages and disadvantages of the budgets you have prepared. Who in the company does the budget help and whom, potentially does it hurt. Dies the budget help or hurt the sales department? What about production and finance How are the various functional arca afected and why? 3. Andy Baxter, newly hired by Let's Go Aem from a competitor suggests preparing the production budget ming stable production Prepare a second and third set of peraduction, purchasing, and cash budgets. Hold production to a constant 3,000 miles per month for the secund sct of budgets, and 3.500 trailen per month for the third sct of budgets. The format for the purchasing and canh budgets should remain a printed in question 2 Use the following approach for the productie budget Decus the advantages and dates the second and thind acts of productie pachning, and cash budete you have prepared. When the company do these budgets help and shoes, potentiale do they hu De these hadgets helper hurt the sales department What about production and finance? How are the functional affected by IMA EDUCATIONAL CASE JOURNAL VOL 4, NO ART. 1, MARCH 2011 PRODUCTION BUDGET Feb 2.000 Aqil 2000 May 3.000 June 2.000 Six Month 12.000 3.000 2.000 Production trailers Add beginning inventory Total available Less budgeted sales Ending inventory - - - - EXHIBIT 1. ACTUAL AND PROJECTED SALES IN NUMBER OF TRAILERS Actual sales 2010 2232 15.91 2005 13,05 2011 20.000 2006 1 2012 32.500 2008 17.09 2014 $8.314 2009 19.534 2015 58,660 Projected sales 0120 4. What metric should Let's Got to measure the performance of each munager in this case? What ben system would you suggest that incorporates these cut and also encourages the manages to work as a team? The detail sales for 2010 (ctual and 2011 (projected by month are as follow 2010 2011 Actual Projecte January 2.500 February 3.218 4.000 March 3.581 5.000 April 2.240 1.000 May 1795 2.000 901 1.800 1,500 August 1.000 September 2.000 October 1578 2.000 November 1439 2.000 December 2.131 2.500 Total number of trailers 23.322 28.000 Actual sales in dollars for the last two months of 2010 and badpeted sales for the first six months of 2011 follow November 2010 actual $1,439,000 December 2010 (actual $2.131,000 January 2011 budgeted) $2.500,000 February 2011 (budgeted) $4,000,000 March 2011 budgeted $5,000,000 April 2011 budgeted $3,000,000 May 2011 (budgeted) $2.200,000 June 2011 (budgeted $1,100,000 Per cypericnce show that 25% of a month's sales ate collected in the month of sale. 10% in the month following the sale, and is in the second month following the sale. The remainder is uncollectible ABOUT IMA With a wide network of more than 60.000 professionals, IMA is the world's leading secunkration dedicated to cmpcring counting and finance professionals to drive beperformance. IMA provides a dynuma forum for professionals to advance their careers through Certified Management Accountant (CMA) certification, escarch pronal education, networking and advocacy of the Michest ethical and profesional standards. For more information about IMA, please visit www.monetom IMA EDUCATIONAL CASE JOURNAL VOL LLART 3 MARCH 2011