PROJECT 1: MASTER BUDGET

The real-world (this company is in the northwest suburbs of Chicago) scenario:

Your company assembles wire (light-metal) closet shelving units at a manufacturing facility and

ships them to home builders and "big box" do-it-yourself chains.

It is October, 2023 and you, the managerial accountant and budget manager, just received an e-mail from the CFO, asking you to put together a 2024 budget.

The projected (because the year is not yet over) 2023 financial information is below.

There are three items for you to complete by filling in the applicable personalized information for 2023.

Then you need to put together a 2024 budget by filling in the 2024 boxes below and submitting to the CFO.

So what to fill in for 2021 (after completing the 2020 income statement)?

For a successful Master Budget, you would seek information and input from your company's:

Sales Manager

Production Manager

Administration Manager

This input (though not necessarily specific!)is provided further below for your interpretation and managing!:

2023 Projected 2024 Budget

Sales $2,340,000 (you fill in)

Production Costs:

Direct Material 630,000 (you fill in)

Direct Labor 420,000 (you fill in)

Manufacturing Overhead (you fill in) (you fill in)

Other Expenses:

Sales commissions 468,000 (you fill in)

Office/Mgmt. Salaries 335,000 (you fill in)

Rent (you fill in)

Utilities 24,000 (you fill in)

Supplies 25,000 (you fill in)

All Other 60,000 (you fill in)

Total costs and expenses (you fill in) (you fill in)

Net Income (you fill in) (you fill in)

Budget input from key personnel:

SALES MANAGER

The Sales Manager is in charge of sales of wire shelving in linear feet (the key metric for this business).. She solicits and receive orders from home builders and chain stores

The following is projected sales data for (full year) 2023:

150,000 linear feet to the home builders at a sales price of $10 per linear foot.

60,000 linear feet to the chain store market at a sales price of $14 per linear foot.

In 2024, predicted higher interest rates is causing an expected decrease in sales to the home builders market.

However, in 2024 it is also predicted that inflated travel/vacation prices is going to cause a small increase in sales to the chain store market (as more people "staycation" and work on home improvement projects)

Sales prices (what is charged to the customers) may be changed if considered appropriate.

(but you would want to consider a change in sales price's effect on volume of sales)

PRODUCTION MANAGER

The production manager is in charge of assembly of these units in the assembly

facility adjacent to the office.

Production at the company facility is based on the assembly of the shelving by the linear foot.

You assemble what you need to fill orders, since there is no space for unsold inventory.

The production manager is also responsible for procurement of the raw materials (metal).

You currently pay at a rate of $3 per linear foot, but your supplier is planning a price increase.

The production manager is also responsible for the assemblers that he directly supervises.

They are paid by production at $2 per linear foot.

The production manager earns an annual salary (which is the entire manufacturing overhead).

That salary is as follows: $91,000

However, in all of the salary scenarios above, the production manager wants a raise in 2024!

Reminder: we have covered the cost behavior of direct material and direct labor - An appropriate budget would be based on expected cost per linear feet produced.

ADMINISTRATION MANAGER

The administration manager is in charge of basically everything at your facility except sales

and production.

A couple of the issues she is working on include:

Hiring an administrative assistant to help implement the new accounts payable software.

Negotiating with the landlord - your lease is up in December and the landlord plans to increase the rent in 2024.

The 2023 full year rent is as follows: $180,000

Adjust 2024 Master Budget by completing where applicable for 2022 and then filling in the boxes as applicable for 2023.