Prepare a budget and analyze the results of operations in relation to the budget will help you understand how to use financial information to evaluate the effectiveness of an organization’s operations. The process will also help you determine the reasons operations do not always go as planned and make decisions on changes that might need to be made to make the organization, or just your own department, more efficient. In the Budget Workbook, you will use course-provided information to 1) prepare an operating budget, 2) compare actual operational results to the budgets to determine financial strengths and weaknesses, and 3) make decisions about operational changes that need to be made. To do this, you will prepare an operating budget at the beginning for your company. Your budget will include different products with different costing methods, labor, overhead, and sales projections based on a desired profit margin. You will compare your budget to actual results to determine and analyze variances. This variance analysis will allow you to make decisions about changes that should be made to make your organization more efficient. This assessment addresses the following course outcomes: · Communicate budget planning to internal stakeholders for strategic planning · Apply costing methods to production for supporting budget planning and decision making You are a manager for Peyton Approved, a pet supplies manufacturer. This responsibility requires you to create budgets, make pricing decisions, and analyze the results of operations to determine if changes need to be made to make the company more efficient. You will be preparing a budget for the quarter July through September 2014. You are provided the following information. The budgeted balance sheet at June 30, 2014, is: Peyton Approved Budgeted Balance Sheet 30-Jun-15 ASSETS Cash $42,000 Accounts receivable 259,900 Raw materials inventory 35,650 Finished goods inventory 241,080 Total current assets 578,630 Equipment $720,000 Less accumulated depreciation 240,000 480,000 Total assets $1,058,630 LIABILITIES AND EQUITY Accounts payable $63,400 Short-term notes payable 24,000 Taxes payable 10,000 Total current liabilities 97,400 Long-term note payable 300,000 Total Liabilities 397,400 Common stock $600,000 Retained earnings 61,230 Total stockholders’ equity 661,230 Total liabilities and equity $1,058,630 1.Sales were 20,000 units in June 2015. Forecasted sales in units are as follows: July, 18,000; August, 22,000; September, 20,000; October, 24,000. The product’s selling price is $18.00 per unit and its total product cost is $14.35 per unit. The June 30 finished goods inventory is 16,800 units. Going forward, company policy calls for a given month’s ending finished goods inventory to equal 70% of the next month’s expected unit sales. The June 30 raw materials inventory is 4,600 units. The budgeted September 30 raw materials inventory is 1,980 units. Raw materials cost $7.75 per unit. Each finished unit requires 0.50 units of raw materials. Company policy calls for a given month’s ending raw materials inventory to equal 20% of the next month’s materials requirements. Each finished unit requires 0.50 hours of direct labor at a rate of $16 per hour. Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $1.35 per unit produced. Depreciation of $20,000 per month is treated as fixed factory overhead. Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable. Sales representatives’ commissions are 12% of sales and are paid in the month of the sales. The sales manager’s monthly salary is $3,750 per month. Specifically, the following critical elements must be addressed: Operating Budget Create an operating budget a) Prepare a sales budget. Ensure accuracy of data. b) Discuss your sales budget line items. Why have you made the choices you have made? What information informed your decision for each item? c) Prepare a production budget. Ensure the accuracy of your data. d) Discuss your production budget line items. Why have you made the choices you have made? What information informed your decision for each item? e) Prepare a manufacturing budget. Ensure the accuracy of your data. f) Discuss your manufacturing budget line items. Why have you made the choices you have made? What information informed your decision for each item? g) Prepare a selling expense budget. Ensure the accuracy of your data. h) Discuss your selling expense budget line items. Why have you made the choices you have made? What information informed your decision for each item? i) Prepare a general and administrative expense budget using appropriate costing methods. j) Discuss your line items. Why have you made the choices you have made? What information informed your decision for each item? Budget Variance Analysis The actual quantity of material used was 31,000 with an actual cost of $7.75 per unit. The actual labor hours were 33,000 with an actual rate per hour of $15. a) Develop a variance analysis including a budget variance performance report and appropriate variances for materials, labor, and overhead. b) Discuss each variance. What does the variance tell you? c) What needs to be investigated to determine the reason for the variance? Why?
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