Master Budget Project

Congratulations! You have just been promoted to controller for a growing company that manufactures green products. It is October 1 and time for creation of the budget for the next year. The budget will be created in quarters using each month as a period of sales/production.

Your first task is to create the budget for the first quarter of 2016. This involves completing budgets for January, February, March and the first quarter in total for 2016. You seek out last years data, recent costing information and follow up on important assumptions.

The CFO wants to see the first quarter budget before you complete the rest of the year, as adjustments may be needed. You will need to create the following sub-budgets as part of the overall master budget.

5. Overhead Budget for the 1^st quarter

6. Cash Receipts of Sales Revenue for the 1^st quarter

7. Cash Payments for Material Purchases for the 1^st quarter

8. Overall Cash Budget for the 1^st quarter

Several assumptions are needed to work into your models for computation. These are determined as follows and have been approved by the CFO. These are summarized on the following page.

This page illustrates all assumptions needed to create the master budget, income statement and statement of cash flows. These assumptions have been approved by the CFO. You will use them to create the master budget for January, February, March and in total for the first quarter.

		Jan	Feb	March	April	May
Unit sales		21,000	22,000	23,000	24,000	20,000
sales price	$10
deseired ending inventory for finished goods	20% of next month's sales in units
desired ending inventory for material units	10% of next month's materials needed for production
cost of one lb of materials (1lb = 1 unit)	$0.25
units of direct materials to make one unit	4
minutes of direct labor to make one unit	12
direct labor costs per hour	$15
overhead costs percentage of direct labor	150%
minimum cash balance (assume you start with this)	$10,000
cash collections in month of sale	65%
cash collections in first month after sale	25%
cash collections in second month after sale	10%
cash payments in month of purchase	60%
cash payments in the first month after purchase	40%
selling costs per month (for cash budget)	$10,000
administrative costs per month (for cash budget)	$15,000
annual interest rate for letter of credit	12%
abbyak ubterest rate earned on excess cash	4%
sales revenue for november	$300,000
sales revenue for december	$250,000
material purchases for november	$35,000
material purchases for december	$26,000
depreciation expense for the quarter (operating expense)	$5,000
Income tax rate	25%

1)Sales Budget
	January	February	March
Units to be sold	21000	22000	23000
* Selling price	$10	$10	$10
	$210,000	$220,000	$230,000

2)Production Budget
	January	February	March	April
Units to be sold	21000	22000	23000	24000
Desired Closing Inventory ( 20% of Next Month Sales)	4400	4600	4800	4000
less opening stock	4200	4400	4600	4800
Units to be produced	21200	22200	23200	23200

Direct material budget
	January	February	March	April
QTY to be prodcued	21200	22200	23200	23200
* required for each unit	4	4	4	4
total material requried	84800	88800	92800	92800
Desired Closing Inventory ( 100% of Next Month requirement)	8880	9280	9280
less opening stock	8480	8880	9280
Direct material to be purchased	85200	89200	92800
* purchase price	$0.25	$0.25	$0.25
Purchase in $	$21,300.00	$22,300.00	$23,200.00

Direct Labor Budget
	January	February	March
Units to be produced	21200	22200	23200
* time required in Minute	12	12	12
Total Minute Require	254400	266400	278400
Total Hours require	4240	4440	4640
* Rate/Hour	$15	$15	$15
Total Direct labor cost	$63,600	$66,600	$69,600