Mr. Roy is an engineer. He completed his graduation five years before and started working with different manufacturing company. After getting some practical experience in manufacturing industries, he decided to start a business of his own and established a private company two years before and named it Kitchener Manufacturing Company. It was established to make two basic products X-1 and X-2.
After first year of its operation, he realized that he should learn basic techniques of running a business. He heard about "The Centre for Entrepreneurship Development" of Conestoga College. This centre provides training to entrepreneurs on managerial, financial and technical aspects of establishing and running an enterprise. Mr. Roy took a course on financial planning during summer and learned about the importance of budgeting for financial planning and control.
He learned that budget is the quantitative tool for planning and control. It provides pre-determined estimate of cost or price for a certain level of activity. It helps to forecast the cash requirements in advance. He is interested in making an arrangement with the bank a line of credit in advance and getting a lower rate of interest for his loan.
He believes in participative budgeting system and gathered information about the operating levels and estimates of costs and revenues for 2018. He also gave the actual data which are different from the budgeted.
Data (both budgeted and actual) that have been assembled by the managers for. 2018 follow:: Requirements for finished units: : X-1 : X-Z : : Raw materials - 1: 10 kg: 8 kg: : Raw materials - 2: -: 4 kg: : Raw materials - 3: 2 units: 1 Unit: a Direct labour: 5 hours: 8 hours: : Sales price : $100: $150: : Sales units: 12,000: 9,000:: Estimated beginning inventory (Units): 400: 150: : Desired ending inventory (Units): 300.: 200.: : The standard cost of raw materials and the inventory policy of the company are given below: : Raw Materials: .: Types of Raw Materials: 1: 2: 3: .: Cost: $2 per kg. $2.5 per kg. $0.50 per unitm: Estimated beginning inventory : 3,000 . 1,500 . 1,000 .: : Desired ending inventory: 4,000 . 1,000 . 1,500 : : The budgeted direct labour wage rate is S 4.00 per hour. Overhead is applied on the basis of direct labour hours. The tax rate is 40%.: The budgeted sales level is divided into quarters. The company estimated that 20% of the annual sales will be in the first quarter, 30% in the second, and 25% in the third and fourth quarters. The beginning inventory of finished products has the same cost per unit as the ending inventory. The work-in-process inventory is negligible. + The sales forecast of the company is shown below: + Quarters + X-1 X-2 . Total Units Units $ First quarter. 2,400 240,000 1,800 270,000 510,000 Second 3,600 360,000 2,700 405,000 765,000 quarter + Third Quarter 3,000 300,000 2,250 337,500 637,500 Fourth 3,000 300,000 2,250 337,500 637,500 Quarter Total. 12,000 1,200,000 9,000 1,350,000. 2,550,000The Manufacturing overhead costs of the company (actual and projected) are as follows:+ Elements of overhead costs + Actual + Projected for 131,900 Labour Hour+ Indirect materials - Variable- $10,500 $10,000 Misc. supplies and tools - Variable - 5,000 5,000 Indirect labour - Variable - 41,000 40,000 Supervision -Fixed 20,000 20,000 Payroll taxes and fringe benefit - Variable - 76,000 75,000 Maintenance costs-fixed + 20,500 20,000 Maintenance costs-variable - 10,000 10,000 Depreciation-Fixed+ 70,000 70,000 Heat, light and power-Fixed . 8,750+ 8,710 +7 Heat, light and power-Variable - 5,250 5,090 Total+ 267,000 $263,800The actual and budgeted selling and administrative costs are as follows:+ Advertising - $60,000 Sales salaries. 200,000 Travel and entertainment+ 60,000 Depreciation-warehouse+ 5,000 Office salaries + 20,000 Executive salaries + 250,000 Supplies+ 4,000 Depreciation-Office- 6,000 Total + $605,000 The actual data for products X-1 and X-2 are given below:" Products X-1 + X-2 - Total + Actual production units + 12,000 units - 10,000 Units + 22,000 Units - Actual labour hours 60,000 75,000 135,000 Labour rate per hour 4.50 4.00 Total actual labour costs- 270,000 300,000+ 570,000Required: . Assume the role of Management Account of Kitchener Manufacturing Company and prepare Cash Budget and forecast the cash position of the company for 2018. (6).. o The beginning cash balance of the company was $15,000\"; 0 The minimum cash balance requirement of the company was decided as $ 10,000... I All sales and purchases are made in cash. .J o All expenses are paid immediately as they incur... You are also asked to prepare the following functional budgets for 2013 for presenting budgeted income statementu 1. Production budget. (3).: 2. Direct materials purchase budget. (6).J 3. Direct labour budget. (3).: 4. Budgeted unit costs of XI and X-Z. (4).. 5. Cost of goods sold budget.(4) .4 6. Budgeted income statement. (4).. Mr. Roy is also interested to know the variances of actual performance from budgeted. identify the areas of variances and calculate the following variances. You are also required to explain the probable causes of such variances and steps that Mr. Revl can take to prevent them in future. .J 1. Calculate labour variances for product X-l and X-Z. (6).. 2. Calculate manufacturing overhead (variable) variances. (4)
