BUDGETING & PRODUCTION PLANNING

Budget 2023

[DATE]
[COMPANY NAME]
[Company address]
 PREPARE THE FIRM'S INVENTORY BUDGET FOR 2023.

FIRST STYLE FITNESS PTY LTD"

BUDGETED SCHEDULE OF COST OF GOODS MANUFACTURED AND SOLD
FOR THE YEAR ENDED DECEMBER 31, 2023

Direct material:
Raw-material inventory, 1/1/x1 ................................................. $ 59,200
Add: Purchases of raw material [req. (4)] .................................. 2,538,000
Raw material available for use ................................................... $2,597,200
Deduct: Raw-material inventory, 12/31/x1
([req. (4)] 10,400 $8) .......................................................... 83,200
Raw material used $2,514,000
Direct labor [req. (5)] ....................................................................... 936,000
Manufacturing overhead:
Indirect material ......................................................................... $ 46,800
Indirect labor .............................................................................. 187,200
Other overhead .......................................................................... 154,000
Depreciation ............................................................................... 80,000
Total manufacturing overhead .................................................. 468,000*
Cost of goods manufactured ............................................................ $3,918,000
Add: Finished-goods inventory, 1/1/x1 ........................................... 167,000
Cost of goods available for sale ....................................................... $4,085,000
Deduct: Finished-goods inventory, 12/31/x1 .................................. 235,000**
Cost of goods sold ............................................................................ $3,850,000

*In the budget, budgeted and applied manufacturing overhead are equal. The applied
manufacturing overhead may be verified independently as follows:

Total number of frames produced ............................................. 468,000

 Direct-labor hours per frame .................................................. .1
Total direct-labor hours ............................................................. 46,800
Predetermined overhead rate per hour ................................. $10
Total manufacturing overhead applied ..................................... $468,000

See next page.

**See next page.
See next page.
 The cost of goods manufactured may be verified independently as follows:

S Frames L Frames
Frames produced .................................................................... 254,000 214,000
Manufacturing cost per unit................................................ $7 $10
Total manufacturing cost ....................................................... $1,778,000 $2,140,000
Grand total.............................................................................. $3,918,000

**The finished-goods inventory on 12/31/x1 may be verified independently as follows:

S Frames L Frames
Projected inventory on 12/31/x1 ........................................... 15,000 13,000
Manufacturing cost per unit ................................................... $7 $10
Cost of ending inventory ........................................................ $ 105,000 $ 130,000
Total cost of ending inventory (S and L) ................................. $235,000

The cost of goods sold may be verified independently as follows:

S Frames L Frames
Frames sold............................................................................. 250,000 210,000
Manufacturing cost per unit ................................................... $7 $10
Cost of goods sold .................................................................. $1,750,000 $2,100,000
Total cost of goods sold (S and L) ........................................... $3,850,000

Prepare the firm's cash budget for 2023.

cash budget:

20x1
First
January February March Quarter
Cash receipts [from req. (2)] ............... $ 413,000 $ 454,300 $ 499,730 $1,367,030
Cash disbursements
[from req. (4)] ................................ (383,160) (404,576) (425,840) (1,213,576)
Change in cash balance
during period due to operations ... $ 29,840 $ 49,724 $ 73,890 $ 153,454
Sale of marketable securities
(1/2/x1) .......................................... 15,000 15,000
Proceeds from bank loan
(1/2/x1) .......................................... 100,000 100,000
Purchase of equipment ....................... (125,000) (125,000)
Repayment of bank loan
(3/31/x1) ........................................ (100,000) (100,000)
Interest on bank loan* ........................ (2,500) (2,500)
Payment of dividends.......................... (50,000) (50,000)

Change in cash balance during

first quarter .................................... $ (9,046)
Cash balance, 1/1/x1 ........................... 35,000
Cash balance, 3/31/x1 ......................... $ 25,954

*$100,000 10% per year 1/4 year = $2,500

Analysis of short-term financing needs:

Projected cash balance as of December 31, 20x0 ......................................... $ 35,000

Less: Minimum cash balance ......................................................................... 25,000
Cash available for equipment purchases ....................................................... $ 10,000
Projected proceeds from sale of marketable securities ................................ 15,000
Cash available ................................................................................................. $ 25,000
Less: Cost of investment in equipment .......................................................... 125,000
Required short-term borrowing..................................................................... $(100,000)
 Summary cash budget:

2023
1st 2nd 3nd 4th Entire
Quarter Quarter Quarter Quarter Year
Cash receipts [from req. (2)] ............ $1,210,000 $1,335,000 $1,460,000 $1,585,000 $5,590,000
Less: Cash disbursements
[from req. (5)] .............................. 927,000 1,012,000 1,097,000 1,182,000 4,218,000
Change in cash balance due to
operations.................................... $ 283,000 $ 323,000 $ 363,000 $ 403,000 $1,372,000
Payment of dividends....................... (50,000) (50,000) (50,000) (50,000) (200,000)
Proceeds from bank loan (1/2/x1) ... 1,000,000 1,000,000
Purchase of equipment .................... (1,000,000) (1,000,000)
Quarterly installment on loan
principal ....................................... (250,000) (250,000) (250,000) (250,000) (1,000,000)
Quarterly interest payment* ........... (25,000) (18,750) (12,500) (6,250) (62,500)
Change in cash balance during
the period .................................... $ (42,000) $ 4,250 $ 50,500 $ 96,750 $ 109,500
Cash balance, beginning of period 95,000 53,000 57,250 107,750 95,000
Cash balance, end of period ............. $ 53,000 $ 57,250 $ 107,750 $ 204,500 $ 204,500

*$1,000,000 10% = $25,000

$750,000 10% = $18,750
$500,000 10% = $12,500
$250,000 10% = $6,250
Prepare the firm's accounts receivable budget for 2023.
Assets:
Cash $114,000
Accounts receivable... 91,000
Merchandise inventory.. 14,000
Land 62,000
Plant & equipment (net). 56,000
Total assets $337,000

Liabilities & stockholders equity:

Accounts payable $180,000
Loan payable 57,000
Common stock. 140,000
Retained earnings... (40,000)
Total liabilities & stockholders equity... $337,000

Supporting calculations:

Cash: $22,000a + $84,000b + ($250,000 x 65%)c + ($250,000 x 35%)d +

($260,000 x 65%)e - $150,000f ($260,000 x 60%)g - $50,000h -
$50,000h - $5,000i = $114,000

Accounts receivable: 35% of sales, or $260,000 x .35 = $91,000

Alternatively, a more detailed approach follows:

Accounts receivable: $84,000 - $84,000 + $250,000 ($250,000 x 65%) +
$260,000 ($250,000 x 35%) ($260,000 x 65%) = $91,000

Merchandise inventory: $35,000 + ($260,000 x 60%)a ($250,000 x 70%)b

+ ($300,000 x 60%)c ($260,000 x 70%)d = $14,000

AFebruary purchases = 60% of March sales

February cost of goods sold = 70% of February sales
March purchases = 60% of April sales
March cost of goods sold = 70% of March sales

Land: $0 + $62,000 = $62,000

Plant & equipment: $80,000 - $12,000 - $12,000 = $56,000
Accounts payable: $150,000 - $150,000 + ($260,000 x 60%) ($260,000 x
60%) + ($300,000 x 60%) = $180,000
Loan payable: $0 + ($62,000 - $5,000) = $57,000
Common stock: $140,000
 Retained earnings: $(69,000) + $250,000 + $260,000 ($250,000 x 70%)
($260,000 x 70%) - $50,000 - $50,000 - $12,000 - $12,000 =
$(40,000)
Prepare the firm's accounts payable budget for 2023.

Payment of accounts payable... $ 22,000

Payment of January purchases ($90,000):
70% in January; 30% in February.. 63,000 $ 27,000
Payment of February purchases ($100,000):
70% in February; 30% in March.. 70,000 $ 30,000
Payment of March purchases ($140,000):
70% in March; 30% in April.. 98,000
Cash operating costs.. 31,000 24,000 45,000
Total cash disbursements... $116,000 $121,000 $173,000

Briefly analyses the budgets you have prepared. Highlight any areas of concern in the budgets and give
advice to your client. (Examples of possible areas of concern are low or negative cash balances, or
excessively high cash balances, both of which are undesirable.)

Manufacturing overhead budget for 20x0:

Cost
Cost Driver Driver Budgeted
Quantity Rate Cost

Purchasing and material handling.......................... 725,000 lb.a $.25 $181,250

Depreciation, utilities, and inspection ................... 106,000 coils b $4.00 424,000
Shipping .................................................................. 100,000c $1.00 100,000
General manufacturing overhead .......................... 253,000 hr. d $3.00 759,000
$1,464,250
Total manufacturing overhead ..............................

a725,000 = 469,000 + 256,000 (from req. 4)

b106,000 = 65,000 + 41,000 (from req. 2)
c100,000 = 60,000 + 40,000 (total units sold, from problem)
d253,000 = 130,000 + 123,000 (from req. 5)

CORRUGATING MEDIUM
Box C Box P Total
Production requirements (number of boxes) .......... 495,000 495,000
Raw material required per box (pounds) ................. .2 .3
Raw material required for
production (pounds) ............................................. 99,000 148,500 247,500
 Add: Desired ending
raw-material inventory ......................................... 10,000
Total raw-material needs ......................................... 257,500
Deduct: Beginning raw-material inventory .............. 5,000
Raw material to be purchased ................................. 252,500
Price (per pound) ...................................................... $.10
Cost of purchases (corrugating medium) ................. $ 25,250
Total cost of raw-material purchases
($97,000 + $25,250) .............................................. $122,250

4. Direct-labor budget:

Box C Box P Total

Production requirements (number of boxes) 495,000 495,000
Direct labor required per box (hours) ...................... .0025 .005
Direct labor required for production (hours) 1,237.5 2,475 3,712.5
Direct-labor rate ....................................................... $12
Total direct-labor cost .............................................. $44,550