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You are the CEO of RPN Co., Ltd., and your team has prepared a budget for 2022 by quarter, as shown in the following sheets.

You are the CEO of RPN Co., Ltd., and your team has prepared a budget for 2022 by quarter, as shown in the following sheets. 1. Discuss how you think about the proposed budget and the performance of the company. What can you suggest to improve both the business operations and the budgeting? 2. Suppose budgeted sales for quarter 1 and quarter 2 are to be revised down from 8,000 and 8,500 units respectively. Explain how these changes will affect the budgets. Also, recommend some strategies to tackle the drop in sales and improve the performance in 2022. You may present a revised master budget to support your argument.

Additional Data for Question#4

Q3 / 2021 Q4 / 2021 Q1 / 2022 Q2 / 2022 Q3 / 2022 Q4 / 2022 Year 2022
Sales Budget Budgeted sales in units 8,000 8,500 10,000 12,000 38,500
Selling price per unit $ 80 $ 80 $ 80 $ 80 $ 80
Total budgeted sales $ 640,000 $ 680,000 $ 800,000 $ 960,000 $ 3,080,000
Production Budget Budgeted Sales 8,000 8,500 10,000 12,000 38,500
Added: Desired ending inventory 3,600 5,100 3,900 4,680 4,680
Total Needs 11,600 13,600 13,900 16,680 43,180
Less: Beginning inventory 3,240 3,600 5,100 3,900 3,240
Required production 8,360 10,000 8,800 12,780 39,940
Direct Materials Budget Production 8,360 10,000 8,800 12,780 39,940
Materials per unit (pounds) 5 5 5 5 5
Production needs 41,800 50,000 44,000 63,900 199,700
Added: Desired ending inventory 19,000 23,000 21,000 22,400 22,400
Total Needs 60,800 73,000 65,000 86,300 222,100
Less: Beginning inventory 20,000 19,000 23,000 21,000 20,000
Materials to be purchased (pounds) 40,800 54,000 42,000 65,300 202,100
Cost per unit $ 3 $ 3 $ 3 $ 3 $ 3
Materials to be purchased $ 122,400 $ 162,000 $ 126,000 $ 195,900 $ 606,300
Direct Labor Budget Units of production 8,360 10,000 8,800 12,780 39,940
Direct labor per unit 2 2 2 2 2
Labor hours required 16,720 20,000 17,600 25,560 79,880
Hourly wage rate $ 10 $ 10 $ 10 $ 10 $ 10
Total direct labor costs $ 167,200 $ 200,000 $ 176,000 $ 255,600 $ 798,800
Manufacturing Overhead Budget Variable Expenses
Budgeted DLH 16,720 20,000 17,600 25,560 79,880
Indirect labor ($0.60/DLH) $ 10,032 $ 12,000 $ 10,560 $ 15,336 $ 47,928
Indirect materials ($0.3/DLH) $ 5,016 $ 6,000 $ 5,280 $ 7,668 $ 23,964
Employee welfare ($1.6/DLH) $ 26,752 $ 32,000 $ 28,160 $ 40,896 $ 127,808
Facilities ($0.5/DLH) $ 8,360 $ 10,000 $ 8,800 $ 12,780 $ 39,940
Variable mfg. OH costs $ 50,160 $ 60,000 $ 52,800 $ 76,680 $ 239,640
Fixed Expenses
Salary and wages $ 50,600 $ 50,600 $ 50,600 $ 50,600 $ 202,400
Government fees $ 6,500 $ 6,500 $ 6,500 $ 6,500 $ 26,000
Insurance expense $ 7,200 $ 7,200 $ 7,200 $ 7,200 $ 28,800
Maintenance costs $ 11,500 $ 11,500 $ 11,500 $ 11,500 $ 46,000
Utilities $ 10,600 $ 6,600 $ 9,600 $ 6,600 $ 33,400
Depreciation expense $ 24,000 $ 24,000 $ 24,000 $ 24,000 $ 96,000
Other expenses $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 12,000
Fixed mfg. OH costs $ 113,400 $ 109,400 $ 112,400 $ 109,400 $ 444,600
Total mfg. OH costs $ 163,560 $ 169,400 $ 165,200 $ 186,080 $ 684,240
Selling Expense Budget Advertising $ 12,960 $ 18,432 $ 19,800 $ 15,696 $ 66,888
Sales commission $ 51,840 $ 73,728 $ 79,200 $ 62,784 $ 267,552
Salary: Sales team $ 38,000 $ 38,000 $ 38,000 $ 38,000 $ 152,000
Travel expenses $ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 14,400
Entertainment expenses $ 2,400 $ 2,400 $ 2,400 $ 2,400 $ 9,600
Insurance $ 600 $ 600 $ 600 $ 600 $ 2,400
Government fee $ 400 $ 400 $ 400 $ 400 $ 1,600
Facilities $ 300 $ 300 $ 300 $ 300 $ 1,200
Depreciation $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 12,000
Other expenses $ 700 $ 700 $ 700 $ 700 $ 2,800
Total selling expenses $ 113,800 $ 141,160 $ 148,000 $ 127,480 $ 530,440
Administrative Expense Budget Salary: Management team $ 40,848 $ 40,848 $ 40,848 $ 40,848 $ 163,392
Salary: Support staffs $ 17,000 $ 17,000 $ 17,000 $ 17,000 $ 68,000
Insurance $ 2,150 $ 2,150 $ 2,150 $ 2,150 $ 8,600
Government fee $ 1,200 $ 1,200 $ 1,200 $ 1,200 $ 4,800
Facilities $ 600 $ 600 $ 600 $ 600 $ 2,400
Office supplies $ 1,400 $ 1,400 $ 1,400 $ 1,400 $ 5,600
Depreciation $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 40,000
Other expenses $ 800 $ 800 $ 800 $ 800 $ 3,200
Total admin. expenses $ 73,998 $ 73,998 $ 73,998 $ 73,998 $ 295,992
Expected Cash Disbursements for Materials Materials to be purchased $ 130,000 $ 122,400 $ 162,000 $ 126,000 $ 195,900 $ 736,300
80% in the same month $ 104,000 $ 97,920 $ 129,600 $ 100,800 $ 156,720
20% in the following month $ 26,000 $ 24,480 $ 32,400 $ 25,200
Total cash disbursements $ 104,000 $ 123,920 $ 154,080 $ 133,200 $ 181,920 $ 697,120
Expected Cash Collections Total budgeted sales $ 700,000 $ 800,000 $ 640,000 $ 680,000 $ 800,000 $ 960,000 $ 4,580,000
60% in the same month $ 420,000 $ 480,000 $ 384,000 $ 408,000 $ 480,000 $ 576,000
40% in the following month $ 280,000 $ 320,000 $ 256,000 $ 272,000 $ 320,000
Total cash collections $ 420,000 $ 760,000 $ 704,000 $ 664,000 $ 752,000 $ 896,000 $ 4,196,000
Capital Expenditure Budget Computer $ - $ - $ - $ 80,000 $ 80,000
Vehicles $ - $ - $ - $ 70,000 $ 70,000
Total $ - $ - $ - $ 150,000 $ 150,000
Cash Budget Beginning cash balance $ - $ 61,522 $ (13,116) $ 42,486 $ -
Add: Cash collections $ 704,000 $ 664,000 $ 752,000 $ 896,000 $ 3,016,000
Total cash available $ 704,000 $ 725,522 $ 738,884 $ 938,486 $ 3,016,000
Less: Cash disbursements
Materials $ 123,920 $ 154,080 $ 133,200 $ 181,920 $ 593,120
Diret labor $ 167,200 $ 200,000 $ 176,000 $ 255,600 $ 798,800
Manufacturing overhead $ 163,560 $ 169,400 $ 165,200 $ 186,080 $ 684,240
Selling expenses $ 113,800 $ 141,160 $ 148,000 $ 127,480 $ 530,440
Admin. Expenses $ 73,998 $ 73,998 $ 73,998 $ 73,998 $ 295,992
Equipment purchase $ - $ - $ - $ 150,000 $ 150,000
Dividend $ - $ - $ - $ - $ -
Total disbursements $ 642,478 $ 738,638 $ 696,398 $ 975,078 $ 3,052,592
Excess (deficiency) $ 61,522 $ (13,116) $ 42,486 $ (36,592) $ (36,592)
Financing:
Borrowing $ - $ - $ - $ - $ -
Repayments $ - $ - $ - $ - $ -
Interest $ - $ - $ - $ - $ -
Total financing $ - $ - $ - $ - $ -
Ending cash balance $ 61,522 $ (13,116) $ 42,486 $ (36,592) $ (36,592)
RPN Co., Ltd.
Cost of Goods Sold Budget
For the Year Ended December 2022
Beginning finished goods inventory $ 58,320
Add: Direct materials
Beginning raw materials inventory $ 40,000
Add: Raw materials purchased $ 404,200
Less: Ending raw materials inventory $ 44,800
Raw materials used in production $ 399,400
Add: Direct labor $ 798,800
Add: Mfg. overhead ($3 / DLH) $ 239,640
Cost of goods manufactured $ 1,437,840
Ending finished goods inventory $ 84,240
Cost of goods sold $ 1,411,920
RPN Co., Ltd.
Budgeted Income Statement
For the Year Ended December 31, 2021
Budgeted sales in units $ 38,500.00
Total budgeted sales $ 3,080,000.00
Cost of goods sold $ 1,411,920.00
Gross margin $ 1,668,080.00
Selling expenses $ 530,440.00
Excess profit $ 1,137,640.00
Less: Fixed expenses
Manufacturing overhead $ 444,600.00
Selling expenses $ 530,400.00
Admin. Expenses $ 295,992.00
Total fixed expenses $ 1,270,992.00
Operating profit $ (133,352.00)
Less: Interest expense $ 2,227.00
Pretax profit $ (135,579.00)
Less: Taxes (assumed) $ (47,452.65)
Net profit $ (88,126.35)
RPN Co., Ltd.
Budgeted Balance Sheet
For the Year Ended December 2022
Assets:
Cash $ (36,592.00)
Accounts receivable $ 384,000.00
Inventory $ 84,240.00
Total current assets $ 431,648.00
Other assets $ 558,585.65
Total assets $ 990,233.65
Liabilities and Stockholders' Equity
Accounts payable $ 39,180.00
Total liabilities $ 39,180.00
Common stock $ 1,000,000.00
Retained earnings $ (88,126.35)
Total liabilities and stockholders' equity $ 990,233.65

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