The facts and figures relating to Al Khabeesi Corporation are as follows. Al Khabeesi Corporation produces drip irrigation connectors. The company is preparing its budget for 2022. The first step is to plan for the first quarter of that coming year. 

Sales

Budgeted sales for November 2021 were 120,500 units. It is anticipated that sales for the following month will be increasing by 5% of the current month’s sales.

The selling price per unit is expected to be $15 per connector for the first two quarters of 2022. The selling price for the subsequent quarters is expected to rise by 2.5% due to inflationary pressures.

All sales are on credit. Al Khabeesi likes to keep 5% of next month’s unit sales in ending inventory. 80% of the accounts receivable are collected in the month of sale and 20% of the accounts receivable are collected in the month after sale.

The accounts receivable on December 31, 2021, totaled $370,500.

Direct Materials

1.5 pounds of direct materials are needed to produce one connector. Al Khabeesi likes to keep 5% of the materials needed for the next month’s production in its ending inventory. Raw materials on hand on December 31, 2021, totaled 12,500 pounds.

Payment for materials is made within 15 days. 70% is paid in the month of purchase, and 30% is paid after the month of purchase. Accounts payable on December 31, 2021, totaled $100,500.

Direct Labor

Labor requires 10 minutes per unit for completion and is paid at a rate of $10 per hour.

Manufacturing Overhead

Indirect materials                               $0.20 per labor hour

Indirect labor                           $0.30 per labor hour

Utilities                                                $0.40 per labor hour

Maintenance                            $0.20 per labor hour

Factory supervisor’s salary      $40,000 per month

Factory Depreciation               $16,000 per month

Property taxes                                     $ 2,000 per month

Insurance                                            $ 1,300 per month

Repairs                                                $ 1,200 per month

Manufacturing overhead are paid in the month incurred.

Selling and Administrative expenses

Salaries                                               $70,000 per month

Advertising                                          $20,000 per month

Insurance                                            $ 1,500 per month

Office Depreciation                 $ 3,500 per month

Other fixed costs                                 $ 4,000 per month

Selling and administrative overhead are paid in the month incurred.

Financing

The cash balance on December 31, 2021, totaled $200,800, but management has decided it would like to maintain a cash balance of at least $500,000 beginning on January 31, 2022.

The company has an open line of credit with the National Bank. The terms of the agreement require borrowing to be in the increments of $10,000, and the interest rate is 5.5%. Al Khabeesi borrows on the first day of the month and repays on the last day of the month if possible.

Purchases

The company has decided to upgrade it’s IT equipment in April 2022. The expected cost of this upgrade is $450,000. Depreciation on this equipment is expected to be at the rate of 30% on a straight-line basis.

Additional information

Balance in the retained earnings account are $60,000 on January 2022. There are no expected withdrawals.

Income tax is expected to be levied at the rate of 10% p.a.

Instructions

1. This group project requires the use of EXCEL spreadsheets to prepare various budgets for a manufacturing company.
2. The class is asked to form groups of not more than 4 students and allocate the task among them equitably.
3. All the members of the group must contribute to the effort and share the overall task, equitably. 
4. The group should PREPARE the following documents for the quarters of 2022 by using a MS EXCEL spreadsheet:

1. Sales Budget
2. Production Budget
3. Direct Materials Purchase Budget
4. Direct Labor Budget
5. Manufacturing Overhead Budget
6. Selling and Administration Budget
7. A Cash Budget.
8. A balance sheet budget

Marking Guide

1. All budgets included                                       [4 Marks]
2. The budgets have been prepared correctly   [6 Marks]
3. The cells are linked with no redundancies     [6 Marks]
4. The budgets are well presented                     [2 Marks]
5. Innovative use of MS Excel                             [2 Marks]