Question

A9-75

in this activity, you will be creating budgets for a single product for each of the months in an upcoming quarter. Select a product that you could purchase in large quantities (at a Sam's Club or other warehouse retail chain) and repackage into smaller quantities to offer for sale at a sidealk cafe, a sporting event, a flea market, or other similar venue. Investigate the price a quantity at which this product is available at the warehouse. Choose a selling price for the smaller (repackaged) package. Make Reasonable assumptions about how many of the smaller units you can sell in each of the next four months (your will need the fourth month's sales in units for the operating budgets).

A. Describe your product. What is your cost of this product? What size (quantity) will you purchase? At what price will you sell your repackaged product? Make projections of your sales in units in each of the upcoming three months.

B. Estimate how many hours you will spend in each of the upcoming three months doing the purchasing, repackaging, and selling. Select a reasonable wage rate for yourself. What will your total labor costs be in each of the upcoming three months?

C. Prepare a sales budget for each of the upcoming three months.

D. Prepare the direct material budgets for the upcoming three months, assuming that you need to keep 10% of the direct materials needed for next month's sales on hand at the end of each month (this requirement is why you needed to estimate unit sales for four months).

E. Prepare a direct labor budget (for your labor) for each of the upcoming three months.

F. Think about any other expenses you are likely to have (i.e., booth rental at a flea market or a vendor license). Prepare the operating expenses budget for each of the upcoming three months.

G. Prepare a budgeted income statement that reflectcs the budget you prepared, including the sales budget, direct materials budget, direct labor budget, and the operating expenses budget. This budgeted income statement should include one column for each of the three months in the quarter, and it should also include a total column that represents the totals of the three months. What is your projected by month and for the quarter?

This is the only information given word for word from the textbook.

Answer 1

1. The product is 16.9 oz. bottled drinking water. The cost is $3.59 plus California Redemption Value $1.75 for a total of $5.34 for 36 bottles of water. I plan to sell individual bottles for $2.00 each.

Month	September	October	November
# of bottles	1,400	1,170	900

  

2.

Month	September	October	November
# of hours	78	81	75

3.

Sales Budget

Month	September	October	November
# of bottles	1,400	1,170	900
Sales price $2.00	$2,800	$2,340	$1,800

4.

Direct Materials Budget

Month	September	October	November
Sales in bottles	1,400	1,170	900
+Desired End. Inv.	117	900	90
-Beginning Inv.	(     0)	( 117)	( 90)*
Purchases of Inv.	1,517	1,953	900
Case price $5.34	43 cases - $229.62	54 cases - $288.36	25 cases - $133.50

* December sales 900 bottles

5.

Direct Labor Budget

Month	September	October	November
# of hours	78	81	75
Hourly wage $10	$780	$810	$750

6.

Operating Expenses Budget

Month	September	October	November
Space rental	$260	$270	$250
Gasoline	38	40	37
Ice	26	27	25
Total	$324	$337	$312

7.

Income Statement

For the three months ended November 30th

Month	September	October	November	Total
Revenue	$2,800	$2,340	$1,800	$6,940
COGS*	1,010	288	134	1,432
Gross Margin	1,790	2,052	1,666	5,508
Op Expenses	324	337	312	973
Net Income	$1,466	$1,715	$1,354	$4,535

*Direct materials + Direct labor