Shiraz, Inc is a small producer and distributor of a product called Alpha Shiraz Company has become interested in the preparation of operating and financial budgets The budgets are vitally needed for operational planning and cost control purposes You have been asked to assist Sara, the accountant of the company, in the preparation of budgets for the first three months of year 20X2 Sales Forecasting Sara knows that the first step for the preparation of budgets is to forecast sales Sara has been able to identify two possible variables that drive influence the sales of the company They are the level of distribution of Alpha (number of dealers) and the amount of money spent on advertising (advertising expenditures) Sara wants to use the Regression method for the development of a regression equation model for forecasting the sales of the company She has accumulated 12 months of recent data on sales units, advertising expenditures, and the number of dealers as shown in Table I TABLE I Sales Advertising Number of Units Expenditures Dealers 248,000 19080 300 256,000 19440 337 264,000 19800 375 304,000 27000 312 320,000 30600 318 272,000 21600 303 296,000 28800 315 216,000 19800 225 232,000 19440 247 240,000 19620 270 268,000 23400 306 280,000 25200 309 Shiraz expects the following for the first five months of year 20X2 January February March April May Advertising Expenditures $28,000 $25,000 $27,000 $26,500 $25,800 No Of Dealers 290 300 208 285 265 Budgeting Management of Shiraz Company is interested in a number of budgets The preferred formats for budgets are displayed in Exhibit I As shown in Exhibit I, Sara's Excel file has two sections Section One contains the required data for the preparation of budgets Section Two contains the budgets Since management of Shiraz wants to simulate the budgets for various possible conditions, the content of budgets will be stated all in formulas The only area where data should be entered manually is in the data section, under the January column only (Hint this will require the use of excel functions including IF , AND , SUM , ROUNDUP , ROUNDDOWN , ROUND etc ) Sara has prepared the following data for the preparation of budgets 1 Sales Selling price per unit of Alpha is expected to be $12 in January through February Five percent increase in selling price is expected in March Aril and May are expected to have the same selling price as in March Seventy five (75) percent of each month's sales are collected in the month of sale The remaining is collected in the following month 2 Manufacturing Expenses Production of each Alpha requires Direct materials 5 pounds of direct material $0 80 per pound (expected to increase by 1 each month) Direct Labor hour of direct labor $10 per hour Variable manufacturing overhead (each unit) $0 50 per unit Fixed manufacturing overhead Total of $25,000 per month of which $3,000 is depreciation expense 3 Operating (Selling Administrative) Expenses Sales Commission $0 80 per unit Shipping and Handling $0 50 per unit Fixed Operating Expenses Total $12,000 per month of which $1,500 is depreciation expense 4 Payment of Expenses Other than purchase of materials, all expenses are expected to be paid in the month incurred Sixty (60) percent of purchases are paid in the month of purchase and the remaining is paid in the following month 5 Capital Expenditures Shiraz is in the process of expansion of its operations by adding new equipment The expansion requires $200,000 cash outflow in the month of January and another $100,000 in the month of February 6 Loan Repayments Interest Expense The Company can borrow from its bank as needed to bolster the Cash account Borrowings and repayments of principle must be in multiples of $1,000, unless you are paying off the entire balance All borrowings and repayments take place at the end of a month The annual interest rate is 12 Interest is compounded every month and added to the principle Compute interest on whole month (1 12, 2 12, and so on) 7 Inventory Policy It is the company's policy to maintain an inventory of Alpha at the end of each month equal to 20 of next month's anticipated sales Company also maintains an inventory of raw materials equal to 25 of next month's production needs 8 Other Information Sales on December of previous year were $4,350,000 Direct material purchases for December of the previous year were $1,800,000 The balance of cash on December 31 of the previous year was $21,000 The Company desires to maintain a minimum balance of $20,000 cash on hand at all times Applicable income tax rate is 30 Requirements Write a memo to the management of Shiraz Company and include attach your findings Specifically Using the data provided by Sara in Table I calculate all possible regression equations that could be used for forecasting sales of Shiraz Company The following step will help you to access regression in your excel file To use regression, follow the following steps Click of file on Excel Click on Option Click on add ins Click on Go under Manage Excel Add ins Select analysis toolpack , OK Click on Data in the tool bar Click on data Analysis Select regression Now, you are ready to enter your data and run the regression The following clip might also be helpful to run regression in Excel https www youtube com watch v QWhsH1vcIaw playnext 1 list PL3626C109B8708824 feature results video In your memo, discuss these various equations and state which of the equations you would recommend to be used and why Provide a complete and detailed justification for your choice Also, discuss the meaning of the regression coefficients of the equation that you choose Attach your Excel work for this section to your memo In your regression equation, carry two decimal points for coefficient of X variables and none for the intercept (Hint Your selection should be based on highest R 2 and t values or P values ) Using the chosen equation in Item 1, forecast sales of Shiraz Company for January to May and state the results in a Table similar to the following in the memo Month January February March April May Sales Units Using the format in Exhibit I, summarize the requisite data for the preparation of budgets in the January column of Section One of your Excel file Then, write the necessary formulas for all other cells to calculate the budgets Format nicely the content of budgets (allow two decimal points for per unit items and round to whole numbers for total items) Attach a print copy of (a) the budgets containing numbers, and (b) the budgets displaying the formulas in the cells (don't worry about displaying the whole formula in order to save paper ) 5 There are rumors that the price of direct materials and direct labor for Alpha to be increased by 15 and 5 , respectively effective January 1, 20X2 Management of Shiraz wants to know the impact of this increase on its financial position Recalculate the budgets by incorporating the expected increases in the price of direct materials and direct labor Compute and discuss the percentages of change in the profit and cash balance of the company due to the increase in the price

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Shiraz, Inc. is a small producer and distributor of a product called Alpha. Shiraz Company has become interested in the preparation of operating and financial

Shiraz, Inc. is a small producer and distributor of a product called Alpha. Shiraz Company has become interested in the preparation of operating and financial budgets. The budgets are vitally needed for operational planning and cost control purposes. You have been asked to assist Sara, the accountant of the company, in the preparation of budgets for the first three months of year 20X2.

Sales Forecasting:

Sara knows that the first step for the preparation of budgets is to forecast sales. Sara has been able to identify two possible variables that drive/influence the sales of the company. They are: the level of distribution of Alpha (number of dealers) and the amount of money spent on advertising (advertising expenditures). Sara wants to use the Regression method for the development of a regression equation/model for forecasting the sales of the company. She has accumulated 12 months of recent data on sales units, advertising expenditures, and the number of dealers as shown in Table I.

TABLE I

Sales

Advertising

Number of

Units

Expenditures

Dealers

248,000

19080

300

256,000

19440

337

264,000

19800

375

304,000

27000

312

320,000

30600

318

272,000

21600

303

296,000

28800

315

216,000

19800

225

232,000

19440

247

240,000

19620

270

268,000

23400

306

280,000

25200

309

Shiraz expects the following for the first five months of year 20X2:

January

February

March

April

May

Advertising Expenditures

$28,000

$25,000

$27,000

$26,500

$25,800

No. Of Dealers

290

300

208

285

265

Budgeting:

Management of Shiraz Company is interested in a number of budgets. The preferred formats for budgets are displayed in Exhibit I. As shown in Exhibit I, Sara's Excel file has two sections. Section One contains the required data for the preparation of budgets. Section Two contains the budgets. Since management of Shiraz wants to simulate the budgets for various possible conditions, the content of budgets will be stated all informulas.The only area where data should be entered manually is in the data section, under the January column only!(Hint: this will require the use of excel functions including: "IF", "AND", "SUM", "ROUNDUP", "ROUNDDOWN", "ROUND" etc.). Sara has prepared the following data for the preparation of budgets:

1. Sales

Selling price per unit of Alpha is expected to be $12 in January through February. Five percent increase in selling price is expected in March. Aril and May are expected to have the same selling price as in March.
Seventy-five (75) percent of each month's sales are collected in the month of sale. The remaining is collected in the following month.

2. Manufacturing Expenses

Production of each Alpha requires:

Direct materials: 5 pounds of direct material @ $0.80 per pound (expected to increase by 1% each month)
Direct Labor: hour of direct labor @ $10 per hour
Variable manufacturing overhead (each unit): $0.50 per unit
Fixed manufacturing overhead: Total of $25,000 per month of which $3,000 is depreciation expense

3. Operating (Selling & Administrative) Expenses

Sales Commission: $0.80 per unit
Shipping and Handling: $0.50 per unit
Fixed Operating Expenses: Total $12,000 per month of which $1,500 is depreciation expense.

4. Payment of Expenses

Other than purchase of materials, allexpensesare expected to be paid in the month incurred. Sixty (60) percent of purchases are paid in the month of purchase and the remaining is paid in the following month

5. Capital Expenditures

Shiraz is in the process of expansion of its operations by adding new equipment. The expansion requires $200,000 cash outflow in the month of January and another $100,000 in the month of February.

6. Loan Repayments & Interest Expense

The Company can borrow from its bank as needed to bolster the Cash account. Borrowings and repayments of principle must be in multiples of $1,000, unless you are paying off the entire balance. All borrowings and repayments take place at the end of a month. The annual interest rate is 12%. Interest is compounded every month and added to the principle. Compute interest on whole month (1/12, 2/12, and so on).

7. Inventory Policy

It is the company's policy to maintain an inventory of Alpha at the end of each month equal to 20% of next month's anticipated sales.
Company also maintains an inventory of raw materials equal to 25% of next month's production needs.

8. Other Information

Sales on December of previous year were $4,350,000.
Direct material purchases for December of the previous year were $1,800,000.
The balance of cash on December 31 of the previous year was $21,000.
The Company desires to maintain a minimum balance of $20,000 cash on hand at all times.
Applicable income tax rate is 30%.

Requirements:

Write a memo to the management of Shiraz Company and include/attach your findings. Specifically:

Using the data provided by Sara in Table I calculate all possible regression equations that could be used for forecasting sales of Shiraz Company. The following step will help you to access "regression" in your excel file:
To use regression, follow the following steps:
Click of "file" on Excel
Click on "Option"
Click on "add-ins
Click on "Go" under Manage: Excel Add-ins
Select "analysis toolpack" , OK
Click on "Data" in the tool bar
Click on "data Analysis
Select regression
Now, you are ready to enter your data and run the regression.

The following clip might also be helpful to run regression in Excel: https://www.youtube.com/watch?v=QWhsH1vcIaw&playnext=1&list=PL3626C109B8708824&feature=results_video

In your memo, discuss these various equations and state which of the equations you would recommend to be used and why. Provide a complete and detailed justification for your choice. Also, discuss the meaning of the regression coefficients of the equation that you choose. Attach your Excel work for this section to your memo. In your regression equation, carry two decimal points for coefficient of X variables and none for the intercept.(Hint: Your selection should be based on highest R²and t-values or P-values.)
Using the chosen equation in Item 1, forecast sales of Shiraz Company for January to May and state the results in a Table similar to the following in the memo.

Month

January

February

March

April

May

Sales Units

Using the format in Exhibit I, summarize the requisite data for the preparation of budgets in the January column of Section One of your Excel file. Then, write the necessary formulas for all other cells to calculate the budgets. Format nicely the content of budgets (allow two decimal points for "per unit" items and "round" to whole numbers for total items). Attach a print copy of (a) the budgets containing numbers, and (b) the budgets displaying the formulas in the cells (don't worry about displaying the whole formula in order to save paper!)

5.There are rumors that the price of direct materialsanddirect labor for Alpha to be increased by 15% and 5%, respectively effective January 1, 20X2. Management of Shiraz wants to know the impact of this increase on its financial position. Recalculate the budgets by incorporating the expected increases in the price of direct materials and direct labor. Compute and discussthe percentagesof change in theprofitandcash balanceof the company due to the increase in the price.