Question
In: Accounting
High Kite is one of the foremost performance kite makers in Australia. The company has always...
High Kite is one of the foremost performance kite makers in Australia. The company has always prepared a budget that is calculated using only one estimated volume of sales. You recently joined the company as a junior accountant. You are required to set up a spreadsheet for sensitivity analysis in the budgeting process. This year it appears that the company may not meet expectations, which could result in a loss. Top manager is concerned that the company will incur a loss again next year, and he wants to develop a budget that will easily reflect changes in the assumptions.
The senior accountant provided you with the following data about the year 2021’s planned operations:
|
Direct labour requirement and rate: |
||
|
Assembly |
Packaging |
|
|
Hours per kite |
0.6 |
0.2 |
|
Rate per hour |
$36.00 |
$24.00 |
|
Use of direct materials in $ per kite: |
||
|
Nylon |
$12.00 |
|
|
Ribs |
$4.00 |
|
|
String |
$2.00 |
|
Direct materials inventory (in $): |
||
|
Expected inventories, 1 January |
Desired inventories, 31 December |
|
|
Nylon |
$5,000 |
$5,200 |
|
Ribs |
$4,200 |
$4,500 |
|
Strings |
$1,000 |
$1,200 |
|
Finished goods inventory (in units): |
||
|
Expected inventories, 1 January |
Desired inventories, 31 December |
|
|
Units |
4000 |
4300 |
|
Sales forecast: |
|
|
Selling price |
$115 |
|
Volume of sales (in units): |
62000 |
Required:
a) Prepare a sales budget (in dollars) for 2021.
b) Prepare a production budget (in units) for 2021.
c). Prepare a direct material purchases budget for all the required materials (in dollars) for 2021.
d) Prepare a direct labour budget (in dollars) for 2021.
e). Prepare a budgeted income statement for the year ending December 31, 2021. You are provided the following budgets: (1) Manufacturing overhead budget shows expected costs to be 100% of direct labour cost, (2) selling and administrative expenses are expected to be 12% of the expected sales revenue, and (3) expected interest expense is $200,000. The company’s income tax rate is expected to be 30% of its income before tax.
The top manager would like to prepare a budget for cash flows on a monthly basis so that they can plan short-term investments and borrowings.
The company’s sales are highest during the spring and summer. Sales are fairly even within each quarter (sales are even within 3 months of each quarter), but sales vary across quarters as follows:
|
Distribution of sales |
||
|
January - March |
30% |
|
|
April - June |
20% |
|
|
July - September |
10% |
|
|
October - December |
40% |
Payments from customers are usually received as follows:
|
Monthly payment from customers: |
|
|
Pay during the month goods are received |
60% |
|
Pay the next month |
38% |
|
Bad debts |
2% |
f) Prepare monthly budgets for cash receipts for 2021. (Hint: you may have to present a table of monthly sales, receipts of the month and from the prior month, and the monthly total receipts.)
Solutions
Expert Solution
| Answer- | |||
| Part A- Sales Budget in (in Dollors) for 2021 | |||
| Particulars | Units | Rate | Amount |
| Notations | A | B | C=A*B |
| Sales | 62,000 | $ 115 | $ 7,130,000 |
| $ 7,130,000 |
| Part B- Production Budget (in Units) for 2021 | ||
| Particulars | Notations | Units |
| Sales | A | 62,000 |
| Closing Inventory | B | 4,300 |
| Opening Inventories | C | 4,000 |
| Production | D=A+B-C | 62,300 |
| Part C- Direct Material (DM) Purchase Budget (in Dollors ) for 2021 | |||||
| Particulars | Notations | Nylon | Ribs | String | Total |
| DM Require for Production (From H Below) | A | $ 744,000 | $ 248,000 | $ 124,000 | 1,116,000 |
| Closing Inventory of Direct Material | B | $ 5,200 | $ 4,500 | $ 1,200 | 10,900 |
| Opening Inventories of Direct Material | C | $ 5,000 | $ 4,200 | $ 1,000 | 10,200 |
| DM Required to be Purchase | D=A+B-C | 744,200 | 248,300 | 124,200 | 1,116,700 |
| DM Requirement- | |||||
| Particulars | Notations | Nylon | Ribs | String | Total |
| Finished Goods Production | F | 62,000 | 62,000 | 62,000 | 186,000 |
| DM Require Per Unit (in $) | G | $ 12 | $ 4 | $ 2 | 18 |
| DM Require for Production | H=F *G | $ 744,000 | $ 248,000 | $ 124,000 | $ 186,018 |
| Part D- Direct Labour (DL) Budget in ( in Dollors) for 2021- | ||||
| DL Requirement for Production- | ||||
| Particulars | Notations | Assembly | Packaging | Total |
| Finished Goods Production | F | 62,000 | 62,000 | 62,000 |
| DL Hours Require Per Unit of Production | G | 0.60 | 0.20 | |
| DL Require for Production (in Hours) | H=F *G | 37,200 | 12,400 | 49,600 |
| DL Require Per Unit for Production (in $) | I | $ 36 | $ 24 | |
| DL Require for Production (In $) | J=H * I | $ 1,339,200 | $ 297,600 | $ 1,636,800 |
| Part E- Budgeted Income Statement for the year ending December 31, 2021- | |||
| Particulars | Calculations | Notations | Amount |
| Revenue- | |||
| Sales | (From Part A) | $ 7,130,000 | |
| Total Revenue | A | $ 7,130,000 | |
| Cost- | |||
| DM Require for Production of 62000 units | (From Part C) | F | $ 1,116,000 |
| DL Require for Production of 62000 units | (From Part D) | G | $ 1,636,800 |
| Manufacturing Overheads (100% of DL) | =100% of 1,636,800 | $ 1,636,800 | |
| Selling and Adminstrative Expenses (12% of Sales) | = 12% of 7,130,000 | $ 855,600 | |
| Interest Expenses | $ 200,000 | ||
| Total Cost | B | $ 5,445,200 | |
| Expected Income Before Tax | C =A-B | $ 1,684,800 | |
| Income Tax @ 30% | = 1684800 * 30% | D | $ 505,440 |
| Expected Income After Tax | E=C-D | $ 1,179,360 |
| Part F- Monthly Budgets for Cash Receipts for 2021- | |||||
| Particulars | Jan- Mar | Apr- June | July- Sep | Oct-Dec | Total |
| No. of Months | 3 | 3 | 3 | 3 | 12 |
| Sales % | 30% | 20% | 10% | 40% | 100% |
| Sales | $ 2,139,000 | $ 1,426,000 | $ 713,000 | $ 2,852,000 | $ 7,130,000 |
| Monthly Sales | $ 713,000.00 | $ 475,333.33 | $ 237,666.67 | $ 950,666.67 |
| Particulars | Notations | Jan-21 | Feb-21 | Mar-21 | Apr-21 | May-21 | Jun-21 | Jul-21 | Aug-21 | Sep-21 | Oct-21 | Nov-21 | Dec-21 | Jan-22 | Total |
| Sales | A | $ 713,000.00 | $ 713,000.00 | $ 713,000.00 | $ 475,333.33 | $ 475,333.33 | $ 475,333.33 | $ 237,666.67 | $ 237,666.67 | $ 237,666.67 | $ 950,666.67 | $ 950,666.67 | $ 950,666.67 | $ - | $ 7,130,000.00 |
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