University Backpacks (Part 2)Budget Analysis Although you didn't really expect to make much money during your first year of business, you were somewhat shocked when you realized just how much money your company lost. A friend suggested that you should have prepared a budget to manage your operations before you started business. It had been several years since your last exposure to budgeting, so you asked your friend to prepare a budget based Unavailable 20X1 amounts and operations. Your friend presented you with the following budget based on a review of your records and discussions with you: University Backpacks First-Year Budget January 1 - December 31, 20X1 Unit Number of Amount Units Sales (backpacks) $40.00 5,000 Computer storage (large) $30.00 2,500 Regular storage (folders, no pockets) $25.00 2,500 Patches, logos, etc. $ 1.00 5,000 $ 1.00 5,000 Payroll taxes 10% Licensing fee 3% Total variable costs $30.80 Contribution margin $ 9.20 Depreciation Insurance Owner's salary Payroll taxes (owner) Storage Wages Annual Budget $200,000 $ 75,000 62,500 5,000 5,000 500 6,000 $154,000 $ 46,000 4,000 3,800 20,000 2,000 2,500 Mini-Case II (Continued) Telephone Total fixed costs Sales commissions Advertising Travel and entertainment Income taxes Other expenses Total fixed and other costs Net loss 3,000 $ 35,300 $ 10,000 5,000 1,300 (1,680) $ 14,620 $ 49,920 $ (3,920) vailable Requirements 1. Using the information provided above answer the following questions: a. What was the expected monthly sales volume? b. Do all the backpacks sell for the same price? Do all have the same cost? c. How did licensing costs affect the per-unit cost of each backpack? Was this cost reasonable? Was this cost necessary? d. How many people would it take to perform the labor needed to embroider and sew "extras" on the backpacks? e. Do all the costs appear to be categorized correctly in the budget? Why or why not? f. How are payroll taxes estimated? g. What is the equation of the line that estimates the budgeted costs? h. What is the contribution margin for the laptop backpacks? i. What is the contribution margin for the non-laptop backpacks? j. How many potential customers does the company have? 2. Using this information and the contribution margin income statement completed for University Backpacks (Part 1), prepare University Backpacks' budget variance report for 20X1. Be pre- pared to discuss the potential reasons for any variances you identify and what can be done about these in the future. 3. Prepare a flexible budget and a budget variance report for 20X1. How do your results compare with what you found with the static budget (2 above)? University Backpacks (Part 2)Budget Analysis Although you didn't really expect to make much money during your first year of business, you were somewhat shocked when you realized just how much money your company lost. A friend suggested that you should have prepared a budget to manage your operations before you started business. It had been several years since your last exposure to budgeting, so you asked your friend to prepare a budget based Unavailable 20X1 amounts and operations. Your friend presented you with the following budget based on a review of your records and discussions with you: University Backpacks First-Year Budget January 1 - December 31, 20X1 Unit Number of Amount Units Sales (backpacks) $40.00 5,000 Computer storage (large) $30.00 2,500 Regular storage (folders, no pockets) $25.00 2,500 Patches, logos, etc. $ 1.00 5,000 $ 1.00 5,000 Payroll taxes 10% Licensing fee 3% Total variable costs $30.80 Contribution margin $ 9.20 Depreciation Insurance Owner's salary Payroll taxes (owner) Storage Wages Annual Budget $200,000 $ 75,000 62,500 5,000 5,000 500 6,000 $154,000 $ 46,000 4,000 3,800 20,000 2,000 2,500 Mini-Case II (Continued) Telephone Total fixed costs Sales commissions Advertising Travel and entertainment Income taxes Other expenses Total fixed and other costs Net loss 3,000 $ 35,300 $ 10,000 5,000 1,300 (1,680) $ 14,620 $ 49,920 $ (3,920) vailable Requirements 1. Using the information provided above answer the following questions: a. What was the expected monthly sales volume? b. Do all the backpacks sell for the same price? Do all have the same cost? c. How did licensing costs affect the per-unit cost of each backpack? Was this cost reasonable? Was this cost necessary? d. How many people would it take to perform the labor needed to embroider and sew "extras" on the backpacks? e. Do all the costs appear to be categorized correctly in the budget? Why or why not? f. How are payroll taxes estimated? g. What is the equation of the line that estimates the budgeted costs? h. What is the contribution margin for the laptop backpacks? i. What is the contribution margin for the non-laptop backpacks? j. How many potential customers does the company have? 2. Using this information and the contribution margin income statement completed for University Backpacks (Part 1), prepare University Backpacks' budget variance report for 20X1. Be pre- pared to discuss the potential reasons for any variances you identify and what can be done about these in the future. 3. Prepare a flexible budget and a budget variance report for 20X1. How do your results compare with what you found with the static budget (2 above)
