Operating Budget Management needs to issue a budget and profit forecast for the year ended December 31, 2021, and use it to evaluate actual 2021 operating results.

1) Prepare a Sales Revenue Budget. a) Keep it simple; 1 product is good. b) State unit sales volume, unit price, and total sales revenue for the previous year, 2020. c) State unit sales volume, unit price, and total sales revenue for the budget year, 2021. (show a realistic increase from the previous year, 2020.)

2) Prepare a Production Budget. a) Use year 2021 Sales Units. b) Beginning inventory should be at least 10% of your year 2020 sales units. c) Ending inventory should be at least 10% of your year 2021 sales units.

3) Prepare one Direct Materials (DM) Purchases Budget. a) Keep it simple; 1 type of material is good. b) DM Budget Assumptions: i) Use year 2021 product units from the Production Budget (step 2). ii) Determine ending Materials inventory on Dec. 31, 2021. iii) Determine Beginning Materials inventory on Jan. 1, 2021. iv) Determine DM quantity per product unit; Example: pounds (lbs) or kilograms (kg). v) Determine average DM cost per pound, kilogram, etc.

4) Calculate Average Budgeted Total Variable Cost per product unit (Standard Cost). a) Determine additional Budget Assumptions: i) Direct Materials (DM): Use product specifications from your DM Budget (step 3). ii) Direct Labor (DL): Determine DL hours per product unit, and average DL rate per hour. iii) Factory Overhead (FO): Make up a Predetermined Factory Overhead Rate, and use it to apply FO cost to each unit of your product. b) How much does it cost to manufacture each unit of your product? Show calculation, please.

5) Prepare a Budgeted Income Statement for 2021. (use format Exhibit 8, text pg. 212). Additional Budget Assumptions: i) Use product units and Sales Revenue from your Sales Revenue Budget (step 1). ii) Use Average Variable Cost per product unit from step 4 above. iii) Determine fixed Selling and Admin cost for the year 2021. iv) Please budget a Net Income (profit) for the year 2021. No losses, please.

6) CVP Analysis; Use your Income Statement from Part 5 to calculate: a) Break-even Sales Units (round to nearest unit). b) Break-even Sales Revenue (round to nearest $). c) Margin of Safety percentage at your Budget Net Income. d) Calculate the units needed to be produced and sold to achieve a Net Income that is 50% higher than your budgeted Net Income.

7) Make up some actual product variable costs incurred in 2021 with details. >Suggestion: Make actual product units produced equal your Sales Budget units. >Example; actual cost details for 12,000 actual product units (DO NOT USE THESE NUMBERS): Total Variable Cost >DM used (total) 3,120,000 kg x DM cost per kg: $1.08 $3,369,600 >DL used (total): 14,600 hours x DL cost per hour: $21.10 308,060 >Variable FO cost incurred (total) 222,340 >Total Variable Cost $3,900,000 actual variable cost per product unit ($3,900,000/12,000): $325

8) Use budget data and actual cost data (step 7) to calculate variances (variance analysis): (show all calculations and indicate "F" favorable or "U" unfavorable with your answers) a) Total variable cost variance (total actual 2021 variable cost-total 2021 budget variable cost). b) DM price variance c) DM quantity variance d) DM cost variance e) DL rate variance f) DL time variance g) DL cost variance h) Total variable FO variance

9) Briefly explain how you can use the variance analysis (step 8) above to control costs and improve your company's performance.

Use your own numbers and calculations.