Imagine, you are planning to start a new small, home-based business. You are going to make and sell a single food item.

What is the food item that your business will sell?

Answer: Pound cake

Assumptions: You are starting your business next month, so currently you have no beginning inventory of finished goods or raw materials. Also, there is no beginning balance for accounts payable or accounts receivable.

Since the business is very small and home-based, there is no direct labor cost for your business. Labor wage (if any) is assumed to be fixed and part of MOH.

All the manufacturing costs you incur for your business falls under any one of the two categories: direct material (DM) or MOH. (Remember indirect material part of MOH)

To calculate the DM cost for your product, find out a simple recipe for the product you are planning to sell. You MUST NOT visit any physical store to collect any data. All information must be collected from the internet. If you cant find any information you need on the internet, make reasonable guesses.

For each of your direct material fill out the following table. Make more copies of the table if necessary. You need to have a separate table for each direct material.

Direct Material 1: Direct material item name Flour Quantity required for each unit of product 375 gm Desired ending inventory as a percentage of following months production requirement 10% Price per unit of direct material 35 tk

Direct Material 2: Direct Material Name Milk Quantity Required for Each Unit of Product 240 gm Desired Ending Inventory as a Percentage of Following Months Production Requirement 10% Price Per Unit of Direct Material 18

Direct Material 3;1 Direct Material Name Granulated sugar Quantity Required for Each Unit of Product 400 gm Desired Ending Inventory as a Percentage of Following Months Production Requirement 10% Price Per Unit of Direct Material 18

Direct Material 4: Direct Material Name Egg Quantity Required for Each Unit of Product 6 eggs Desired Ending Inventory as a Percentage of Following Months Production Requirement 10% Price Per Unit of Direct Material 54 Tk.

Direct Material 5: Direct material item name Butter Quantity required for each unit of product 340 gm Desired ending inventory as a percentage of following months production requirement 10% Price per unit of direct material 475 tk

Based on the recipe and information you have collected from the internet, calculate the total direct material cost for making one unit of your product.

Direct material cost per unit = (35+18+18+54+475)=600 tk

Now, we will calculate MOH costs for your business. Remember, Total MOH = Variable MOH + Fixed MOH.

Assume, indirect materials are the only thing included in your variable MOH. Identify some indirect materials for your product, and assume a rate of variable MOH cost for each unit of produ Electricity bill per unit = 20 Tk

Variable MOH cost per unit = 20 Tk. You do not have to make any budget for indirect material. The variable MOH rate you have assumed in the previous table will be used for preparing the MOH budget.

Since depreciation is part of fixed MOH, we will now calculate depreciation expenses.

To calculate depreciation expense, first, identify the equipment you will need to make your product. Next, find the cost(s) of the equipment from the internet. Then, make estimation(s) about useful life. Finally, calculate the depreciation expense per month using a straight-line depreciation method. Show your calculations in the following table.

Add more rows in the table if necessary. Equipment Name Cost Useful Life Depreciation Expense Microwave Oven 17500 3 years 17500/3/12=485 tk

Write down the total depreciation expense included in fixed MOH based on your calculations in the last table.

Total depreciation expense = 485 Tk.

All the equipment you have identified above will be purchased in the first month of your business, i.e. in October 2020.

Identify all other monthly fixed MOH expenses for your business. Remember, it is a small, home-based business so you do not have to make many complicated assumptions. You have already calculated depreciation expense in the above table. List all fixed expenses, including depreciation expense calculated above, in the following table.

Add more rows in the table as necessary.

Fixed MOH Expense Item Name Fixed Expense Per Month Rent expense 5000 Tk. Indirect labor 4,000 Tk.

Write down the total fixed MOH expense, including depreciation expense, based on the list you have prepared in the last table.

Total fixed MOH expense = (485+5000+4000)=9485 tk

Remember, Total selling and administrative (SnA) expense = Variable SnA + Fixed SnA

Your variable SnA expense consists of only two items - delivery expense per unit and packaging cost per unit. Write your estimations about delivery expense per unit and packaging cost per unit in the following table. Also, add the two numbers to calculate total variable SnA expense for each unit of product. Delivery expense per unit = 55Tk. Packaging cost per unit = 5 Tk.

Variable selling and administrative expense per unit = (55+5) Tk. = 60 Tk.

Your fixed advertising expense consists of only one item - facebook advertising expense. Write your estimation about your monthly facebook advertising expense. This is your total fixed SnA expense per month. Facebook advertising expense = 6500 Tk.

Fixed selling and administrative expense per month = 6500 Tk.

Calculate your total variable expenses for each unit of product by adding the direct material cost per unit, variable MOH rate per unit, and variable SnA expense per unit of product. Total variable expense per unit = (600+20+60)=680 Tk

Calculate your selling price per unit by charging a 200% mark-up on per unit variable expense. Selling price per unit = [680+(680 * 200%)] = (680Tk. + 1360Tk.) = 2040Tk.

Now, we will make some estimations about the number of units of product your business expects to sell over the next 12 months. Fill out the following table about sales estimates. Month Estimated Units of Product Sold October 125 Units November 125 Units December 130 Units January 135 Units February 135 units March 140 Units April 145 Units May 145 Units June 150 Units July 155 Units August 160 Units September 165 units

Assume all sales will be on cash and you will collect 100% of the revenue.

Since you are going to sell a food item, no ending inventory of finished goods will be maintained. Each unit will be manufactured after an order is received.

All purchases for all direct materials are made fully in cash.

You want to draw a dividend of BDT 20,000 every month as the sole owner of your business. [This your dividend, you will not use this money for operating your business.]

At the end of each month you want to have at least BDT 50,000 cash available for operating your business. You will start the business with a cash investment of BDT 500,000.

You can borrow up to BDT 200,000 from your best friend to invest in your business.

You will not repay any borrowed amount, even if you have sufficient cash available, any time during the next year.

Requirements: Based on the assumptions you have formed above, prepare a Master Budget consisting of the following components in the Google Sheet attached to this assignment.

1. Sales Budget [No schedule of cash collection will be needed as all sales are on cash.] 2. Direct Material Budget(s) [Make a separate budget for each direct material. No schedule of cash disbursements for direct material will be necessary as all purchases will be made in cash.] 3. MOH Budget. 4. SnA Expense Budget 5. Cash Budget

Note: You will not need any production budget since units sold = units produced every month. Thus, the sales estimates you have formed above will also be used as the number of units produced in the Master Budget.

Your budget must be prepared as demonstrated in class. First input your assumptions in the Google Sheet, and then prepare a fully linked Master Budget making use of cell referencing and automated formulas for calculations.