Question
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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