Question 2: Prepare production, purchasing, and cash budgets for Let's Go for the first six months of 2011 using the formats below. Discuss the advantages and disadvantages of the budgets you have prepared. Who in the company does the budget help and whom, potentially, does it hurt. Does the budget help or hurt the sales department? What about production and finance? How are the various functional areas affected and why?

I am looking for help on identifying which data should be going into the calculation

INTRD DUCTIDN Let's Go here manufactures travel trailers bought primarily by young families and retirees interested in a light, low-cost trailer that can easily be pulled by a mid-sized family car. The market for travel trailers has expanded nicely over the past few years due to the number of families seeking a relatively low-cost, outdoor vacation experience. But in the view of Let's Go hero's president, Marl: Newman, the real growth in the ame is in the retiree market. Newman believes the vigorous health of the average retiree, coupled with the national trend toward a return to nature, will translate into continuing sales growth for Let's Go. its Newman loves to say, \"camping recently moved from number seven to number six on the list oftop lL'] leisure activities in the United States, and the baby boomers are getting older every day.\" THE RETIREE MARKET Baby boomers (born between l."] #46 and 12!"). It'd-4: carry a lot of consumer clout. .I'tccording to the National Opinion Research lCenter at the University ofChicago, ?4% of boomers taged 4T5} own their own home, 46% are satised with their nancial situation, and 56% are married. The spending power of this demographic is likely to increase. People who are 50 years old and older are expected to inherit an estimated $14 to $20 trillion dollars during the next twenty years. .I'tlso, baby boomers make up a signich part ofthe total LLS. population. .I'tccording to the US. Census Bureau, in 2011!: baby boomers represented 26% ofthe populace. In that year there were just under 13 million boomers living in the United States, with the largest populations living in California. Texas, New York, Florida, and Pennsylvania. Research indicates that for an organization to meet the needs of the senior market, including baby boomers, the following must be addressed: 1 Independence and control, 1 Intellectual stimulation and self-expression, 1. Security and peace of mind, Quality and value. 1 Seniors respond to benet-driven messages; to attract them, advertising has to communicate tangible benefits rather than features and amenities. MARKETING AND SALES The forecasted increase in Let's Go's sales can be seen in the company's sales projections presented in Exhibit ] {actual for the years 2005 through 21]] and projected for the years 201 1 through 21315}. Although the weather can have a significant impact on the travel trailer industry {i.e., hurricane season, flooding, and even drougth have had negative effects on the sales and rentals oftravel trailers], Let's Go's management believes these problems will be mitigated in the future by global warming. .I'tll sales projections are done by Mark Newman in his role as Let's Go's president. - 1 contract, and her efforts to locate an alternative vendor, willing To keep from losing sales, the company maintains finished to accept the conditions of a just in-time contract, have similarly goods inventory on hand at the end of each month equal to 300 failed. She blames Tom Sloan. Let's Go's current aluminum trailers plus 20% of the next month's sales. The finished goods vendor refuses to sign a just-in-time prime vendor contract due inventory on December 31, 2010, was budgeted to be 1,000 to Tom's uneven production schedule and his refusal to pay on trailers. Jim West, Let's Go's vice president of marketing and time. Tom has been seen reading the help wanted ads, and sales, would rather see a minimum finished goods inventory Vicky over heard him talking to an employment agency. of no less than 1,500 trailers. Jim refuses to talk to Tom Sloan, Let's Go's production manager. Tom is always trying to get Jim In keeping with the policy set by Tom as Let's Go's to consider adopting flexible inventory levels, which Jim is production manager, the amount of sheet aluminum on hand at certain would affect his yearly bonus. The vice president of sales the end of each month must be equal to one-half of the and marketing is eligible for a 20% bonus based on sales. following month's production needs for sheet aluminum. The Unfortunately, Jim did not receive a bonus in 2010. Sales were raw materials inventory on December 31, 2010, was budgeted up, but Mark refused to give Jim the bonus, although it was to be 39,000 square yards. The company does not keep track of earned, due to the high number of customer complaints. Jim was work-in-process inventories. really steamed when he heard "no bonus." Didn't Mark Budgeted expenses for Aluminum and other materials, know those complaints were for poor quality? All of Jim's as well as wages, heat, light and power, equipment rental, efforts to grow sales and attract customers were, once again, equipment purchases, depreciation, and selling and destroyed by Tom Sloan and his production failures. administrative for the first six months of 2011 are given below. TRAILER PRODUCTION January February March Aluminum $816,000 $1,056,000 $888,000 Sheet aluminum represents the company's single most Other materials 54,000 264,000 222,000 expensive raw material. Each travel trailer requires 30 square Wages 624,000 1,008,000 1,104,000 yards of sheet aluminum. The wholesale cost of sheet aluminum Heat, light, & power 130,000 195,000 220,000 varies dramatically according to the time of year. The cost per Equipment rental 390,000 390,000 390,000 square yard can vary from $15 in the spring, when new Equipment purchases 300,000 300,000 300,000 construction tends to start, to $8 in December and January, Depreciation 250,000 250,000 250,000 when demand is lowest. Selling & admin 400,000 400,000 400,000 The use of aluminum in vehicles, including travel trailers, is increasing rapidly due to a heightened need for fuel April May June efficient, environmentally friendly vehicles. Aluminum can Aluminum $552,000 $336,000 $240,000 provide a weight savings of up to 35% compared Other materials 138,000 84,000 90,000 to an equivalent steel structure, improving gas mileage Wages 672,000 432,000 240,000 significantly. The aluminum industry and suppliers are Heat, light, & power 135,000 110,000 110,000 dispersed across four-fifths of the country, yet they are largely Equipment rental 340,000 340,000 340,000 concentrated in four regions: the Pacific Northwest, industrial Equipment purchases 300,000 300,000 300,000 Midwest, northeastern seaboard, and mid-South. Although this Depreciation 275,000 275,000 275,000 is a broad geographic presence, Let's Go Aero will be affected Selling & admin 400,000 400,000 400,000 by distribution costs. Vicky Draper, Let's Go's vice president of purchasing and materials handling, is eager to implement just-in-time as a way Accounts for aluminum and other materials are paid in full of lowering Let's Go's aluminum cost. To offset the expense during the month following their purchase. Accounts of distribution, Let's Go is located in Pennsylvania. Vicky's payable for aluminum and other materials purchased during projected 20% bonus, recently announced by Mark and December, 2010 totaled $850,000 combined. This amount will effective for year-end 2011, is based on her ability to lower be paid in January, 201 1. total material cost. Initially enthusiastic about her job and ability to earn a significant bonus, Vicky has become discouraged and angry. She is unable to convince Let's Go's current aluminum supplier to sign a prime vendorCASH COMPETITION Let's Go's vice president of finance, Becky Newman, has All forms of vacation and leisure activities, including theme requested an $800,000, 90 day loan from the bank at a yet to be parks, beach or cabin rentals, health spas, resorts, and cruise determine interest rate. Since Let's Go has experienced vacations compete with Let's Go Aero Travel Trailers for the difficulty in paying off its loans in the past, the loan officer at consumer dollar. Other recreational purchases such as the bank has asked the company to prepare a cash budget for the automobiles, snowmobiles, boats, and jet-skis are six months ending June 30, 201 1, to support the requested loan indirect competitors. amount. The cash balance on January 1, 2011, is budgeted at Travel trailer manufacturers such as Crossroads RV, Jayco, $100,000 (the minimum cash balance required by Let's Go's Coachman RV, and Scamp also offer a moderate-to low-priced board of directors) travel trailer. Manufacturers that offer more diverse product lines such as high-end trailers with luxury accommodations HUMAN RESOURCES could compete for the fairly affluent senior market. Coachman RV, a direct Let's Go competitor, has become a To accomplish the company's corporate strategic goals, Let's Go leader in the recreational vehicle, motor home, and travel Aero Travel Trailers encourages upward communication among all trailer industry through a commitment to quality and value its employees, from senior management to line employees. based on excellence in engineering and attention to detail. Decision making, although not an entirely democratic process, Creative engineering, combined with high-accuracy analysis, is based on a team approach. Newman, as Let's Go's president, reduced material costs at Coachman by more than 60% and encourages managers to think in terms of the marketplace and labor costs by 78% to look at the business of travel trailers as a whole rather than as functional department successes and decisions. In fact, BUDGET PREPARATION Newman is so committed to the idea of cooperative management and teamwork that he has hired three separate To minimize company time lost on clerical work, Let's Go's human resource consultants in the past six months to lead the accounting department prepares and distributes all budgets to company's managers through team-building exercises. the various departments every six months. Per Mark Newman, "Freeing departmental managers from the budgeting process REQUIRED (3 questions) allows them to concentrate on more pressing matters." In keeping with the recently announced bonus plan for the vice 1. Discuss the validity and reasonableness of Let's Go's sale projections. president of purchasing and materials handling, Newman has 2. Prepare production, purchasing, and cash budgets for Let's Go for the instructed the accounting department to budget aluminum at first six months of 2011 using the formats below. $8 per square yard. The accounting manager recently received Discuss the advantages and disadvantages of the budgets you have a 20% bonus for having prepared the budgets on time with prepared. Who in the company does the budget help and whom, little or no help from the other functional areas. potentially, does it hurt. Does the budget help or hurt the sales department? What about production and finance? How are the various functional areas affected and why? PRODUCTION BUDGET Jan Feb March April May June Six Months Budgeted Sales Add: desired ending inventory Total needs Less: beginning inventory Trailer productionPURCHASES BUDGET Jan Feb March April May June Six Months Trailer production Sheet aluminum needs por trailer(sq. yos.)- Total production need: Add: desired ending inventory Total materials needs Less: beginning inventory Total sheet aluminum purchases Cost per square yard $_ $_ $_ $_ Total Aluminum cost CASH BUDGET (in 000s $) Jan Feb March April May June Six Months Cash beginning balance $100 $ $_ $_ $_ $ Add: cash collections Total cash available Less: cash disbursements XXXXX SOOXX Etc. Total cash disbursements Excess (deficiency) Financing Borrowings Repayments Interest (to be determined) Total financing Cash balance ending $ $ $ $ $ To be invested. What metric should Let's Go use to measure the performance of each manager in this case? What bonus system would you suggest that incorporates these measures and also encourages the managers to work as a team? EXHIBIT 1. ACTUAL AND PROJECTED SALES IN NUMBER OF TRAILERS Actual sales 2005 2008 2007 2008 2009 2010 13.765 14.880 15.991 17.809 19.63- 23,322 Projected sales 2011 2012 2013 2014 2015 28,000 33,600 40,320 48,38 58,060 Actual sales in dollars for the last two months of 2010 and budgeted sales for the first six months of 201 1 follow: November 2010 (actual) $1,439,000 The detail sales for 2010 (actual) and 201 1 (projected) by December 2010 (actual) $2,131,000 January 2011 (budgeted) $2,500,000 month are as follows: February 2011 (budgeted) $4,000,000 March 201 1 (budgeted) $5,000,000 2010 2011 April 2011 (budgeted) $3,000,000 (In number of trailers) Actual Projected May 201 1 (budgeted) $2,200,000 January 1,983 2,500 June 2011 (budgeted) $1,100,000 February 3,218 4,000 Past experience show that 25% of a month's sales are March 3,981 5,000 collected in the month of sale, 10% in the month following April 3,240 3,000 the sale, and 60% in the second month following the sale. May 1,755 2,000 The remainder is uncollectible. June 901 1,000 July 763 1,000 August 611 1.000 September 1,622 2,000 October 1,678 2,000 November 1,439 2,000 December 2.131 2,500 Total number of trailers 23,322 28,000Template_Question 2 Prepare production, purchasing, and cash budgets for Let's Go for the first six months of 2011 using the formats below. A. PRODUCTION BUDGET: January February March April May June Six Months Budgeted sales Add: desired ending inventory Total needs Less: beginning inventory Trailer production B. PURCHASES BUDGET: January February March April May June Six Months Trailer production Sheet aluminum needs per trailer (sq. yous. Total production needs Add: desired ending inventory Total material needs Less: beginning inventory 39.000 Total sheet aluminum purchases Cost per square yard (3) Total Aluminum cost ($) C. CASH BUDGET (in 000s $) January February March April May June Six Months Cash beginning balance $100 Add: cash collections Total cash available Less: cash disbursements Aluminum Other materials Wages Heat, light, & power Equipment rental Equipment purchases Selling & administrative Total cash disbursements Excess (deficiency) Financing Borrowings Repayments Interest (to be determined) (Interest rate Is to be determined. NO need to IN in this row.) Total financing Cash balance ending Minimum cash balance To be invested "Adowional amount above minknown cash balance can be invested. ] D. Discuss the advantages and disadvantages of the budgets you have prepared. Who in the company does the budget help and whom, potentially, does it hurt? Does the budget help or hurt the sales department? What about production and finance? How are the various functional areas (i.e., sales, production, purchasing. and finance) affected and why