Budget For Sales, Production, Direct Material, Direct Labor, Manufacturing Overhead, Ending Finished Goods Inventory And Cost Of Goods Sold Budget

Sales Budget

a

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Sales Budget:

Particulars

January

February

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March

Total

Sales Volume (in units)

76850

61480

69160

207490

Unit Selling Price

$6,300

$6,300

$6,300

$6,300

Projected Sales (in $)

$484,155,000

$387,324,000

$435,708,000

$1,307,187,000

 b

Production Budget:

1st Quarter

Particulars

January

February

March

Total

April

(in unit)

(in unit)

(in unit)

(in unit)

Projected Sales Volume

76850

61480

69160

207490

92210

Add: Closing Stock of Finished Goods

36888

41496

55326

55326

Less: Opening Stock of Finished Goods

49200

36888

41496

49200

Projected Production Volume (in units)

64538

66088

82990

213616

 

 c

Direct Material Purchases Budget:

Particulars

January

February

March

Total

April

Part 714

Part 502

Part 714

Part 502

Part 714

Part 502

Part 714

Part 502

Part 714

Part 502

Projected Production Volume

64538

64538

66088

66088

82990

82990

Material required p.u.

5

6

5

6

5

6

Total Material Required

322690

387228

330440

396528

414950

497940

1068080

1281696

 

 

Add: Closing Stock of Raw Materials

61480

73776

69160

82992

92210

110652

92210

110652

Less: Opening Stock of Raw Material

76850

92220

61480

73776

69160

82992

76850

92220

Direct Material Purchased (in units)

307320

368784

338120

405744

438000

525600

1083440

1300128

 

 

Material Cost p.u.

$92

$123

$92

$123

$92

$123

$92

$123

Projected Direct Material Purchased

$28,273,440

$45,360,432

$31,107,040

$49,906,512

$40,296,000

$64,648,800

$99,676,480

$159,915,744

 

 

 d

Direct Labor Budget:

1st Quarter

Particulars

January

February

March

Total

(in unit)

(in unit)

(in unit)

(in unit)

Projected Production

64538

66088

82990

213616

Direct Labor Hours p.u.

9

9

9

9

Total Direct Labor Hours

580842

594792

746910

1922544

Direct Labor Cost per hour

$50

$50

$50

$50

Budgeted Direct Labor Cost

$29,042,100

$29,739,600

$37,345,500

$96,127,200

 e

Manufacturing Overhead Budget

1st Quarter

Particulars

January

February

March

Total

Total Direct Labor Hours

580842

594792

746910

1922544

Variable Overhead per labor hour:

Indirect Labor

$64.55

$64.55

$64.55

$64.55

Power

$6.15

$6.15

$6.15

$6.15

Maintenance

$37.77

$37.77

$37.77

$37.77

Other Manufacturing Cost

$46.11

$46.11

$46.11

$46.11

Total Variable Manufacturing Cost

$89,786,664

$91,943,058

$115,457,486

$297,187,208

Fixed Overhead:

Supervision

$43,033,200

$43,033,200

$43,033,200

$129,099,600

Depreciation

$3,842,300

$3,842,300

$3,842,300

$11,526,900

Rates & utilities

$3,175,200

$3,175,200

$3,175,200

$9,525,600

Maintenance

$34,967,759

$34,967,759

$34,967,759

$104,903,278

Other Fixed Overhead

$15,369,000

$15,369,000

$15,369,000

$46,107,000

Total Fixed Manufacturing Overhead

$100,387,459

$100,387,459

$100,387,459

$301,162,378

Budgeted Manufacturing Overhead

$190,174,124

$192,330,517

$215,844,946

$598,349,587

 f

Ending Finished Goods Inventory Budget

1st Quarter

Particulars

January

February

March

Total Production Volume

64538

66088

82990

Material Cost p.u.:

Part 714

$460

$460

$460

Part 502

$738

$738

$738

Total Material Consumed

$77,316,524

$79,173,424

$99,422,020

Total Direct Labor Cost

$29,042,100

$29,739,600

$37,345,500

Total Manufacturing Overhead

$190,174,124

$192,330,517

$215,844,946

Total Production Cost

$296,532,748

$301,243,541

$352,612,466

Production Cost p.u.

$4,594.70

$4,558.22

$4,248.85

Ending Finished Goods Inventory

36888

41496

55326

Budgeted Finished Goods Inventory

$169,489,293

$189,147,833

$235,072,145

 g

Cost of Goods Sold Budget:

1st Quarter

Particulars

January

February

March

Total

Budgeted Absorption Cost of Opening Inventory

$3,070

$4,594.70

$4,558.22

$3,070

Opening Stock of Finished Goods

49200

36888

41496

49200

Opening Stock Value

$151,044,000

$169,489,293

$189,147,833

$151,044,000

Add: Total Production Cost

$296,532,748

$301,243,541

$352,612,466

$950,388,755

$447,576,748

$470,732,834

$541,760,299

$1,101,432,755

Less: Closing Finished Goods Inventory

$169,489,293

$189,147,833

$235,072,145

$235,072,145

Budgeted Cost of Goods Sold

$278,087,455

$281,585,001

$306,688,154

$866,360,610

 h

Budgeted Income Statement:

1st Quarter

Particulars

January

February

March

Total

Total Sales Revenue

$484,155,000

$387,324,000

$435,708,000

$1,307,187,000

Less: Cost of Goods Sold

$278,087,455

$281,585,001

$306,688,154

$866,360,610

Gross Profit

$206,067,545

$105,738,999

$129,019,846

$440,826,390

Less: Selling & Admin Expenses

$100,287,450

$80,230,000

$90,254,000

$270,771,450

Budgeted Net Profit/(Loss)

$105,780,095

$25,508,999

$38,765,846

$170,054,940

 i

Cash Budget:

1st Quarter

Particulars

January

February

March

Total

Cash Flow from Operating Activities:

Collection from the month’s sales

$377,640,900

$302,112,720

$339,852,240

$1,019,605,860

Collection from last month’s sales

$154,930,000

$96,831,000

$77,464,800

$329,225,800

Cash Sales

$9,683,100

$7,746,480

$8,714,160

$26,143,740

Purchase of Direct Material

($73,633,872)

($81,013,552)

($104,944,800)

($259,592,224)

Direct Labor Cost

($29,042,100)

($29,739,600)

($37,345,500)

($96,127,200)

Variable Manufacturing Overhead

($89,786,664)

($91,943,058)

($115,457,486)

($297,187,208)

Supervision Cost

($43,033,200)

($43,033,200)

($43,033,200)

($129,099,600)

Rates & utilities

($3,175,200)

($3,175,200)

($3,175,200)

($9,525,600)

Maintenance

($34,967,759)

($34,967,759)

($34,967,759)

($104,903,278)

Other Fixed Overhead

($15,369,000)

($15,369,000)

($15,369,000)

($46,107,000)

Selling & Admin Expenses

($100,287,450)

($80,230,000)

($90,254,000)

($270,771,450)

Net Cash Flow from Operating Activities

$152,958,754

$27,218,831

($18,515,746)

$161,661,839

Cash Flow from Investing Activities:

Purchase of Land

($39,959,400)

($39,959,400)

Net Cash Flow from Investing Activities

$0

($39,959,400)

$0

($39,959,400)

Cash Flow from Financing Activities:

Dividend paid

($190,000,000)

($190,000,000)

Loan Taken

$33,198,946

$46,105,510

$64,851,783

$144,156,238

Loan Repaid

($33,198,946)

($46,105,510)

($79,304,455)

Interest paid on Loan

($165,995)

($230,528)

($396,522)

Cash Flow from Financing Activities:

($156,801,054)

$12,740,569

$18,515,746

($125,544,739)

Net Increase/(Decrease) in Cash Balance

($3,842,300)

$0

$0

($3,842,300)

Add: Opening Cash Balance

$3,842,300

$0

$0

$3,842,300

Closing Balance

$0

$0

$0

$0

Total Opening & Closing Raw Material Inventory:

Particulars

January

February

March

April

Part 714

Part 502

Part 714

Part 502

Part 714

Part 502

Part 714

Part 502

Total Sales Volume

76850

76850

61480

61480

69160

69160

92210

92210

Material Required p.u.

5

6

5

6

5

6

5

6

Stock Maintaining Level

20%

20%

20%

20%

20%

20%

20%

20%

Opening Stock

76850

92220

61480

73776

69160

82992

92210

110652

Closing Stock

61480

73776

69160

82992

92210

110652

 

 

Fixed & Variable Maintenance Cost:

Direct Labor Hours

Total Maintenance Cost

1483100

$90,984,500

1690600

$98,822,700

1552300

$93,597,200

1413900

$88,371,800

Variable Maintenance Cost per hour

$37.77

Fixed Maintenance Cost

$34,967,759

Particulars

Without New Facility

% of Total Cost

With New Facility

% of Total Cost

Variance

Remarks

Direct Material Cost

$255,911,968

27%

$191,933,976

19%

25.00%

Favorable

Direct Labor Cost

$96,127,200

10%

$72,095,400

7%

25.00%

Favorable

Variable Manufacturing Overhead

$297,187,208

31%

$297,187,208

29%

0.00%

Favorable

Fixed Manufacturing Overhead

$301,162,378

32%

$451,743,568

45%

-50.00%

Adverse

Total Production Cost

$950,388,755

100%

$1,012,960,152

100%

-6.58%

Adverse

 As can be observed from the above table, the new highly automated manufacturing facility as planned to be built by Paulo would ultimately impact the business in a negative way. This can be clearly understood from the analysis of the above table. As it is mentioned in the table, the direct material cost decreases from $255,911,968 to $191,933,976 which will definitely have a favorable effect on business by a variance amount of 25%. Then comes the direct labor cost which also impacts the business in a favorable way. This is because with the installation of the new manufacturing facility the direct labor cost decreases from $96,127,200 to $72,095,400. This means that the new manufacturing reduces the dependency of business over the force of labor that is it makes business much more automated in nature (Yahya-Zadeh  2012). The variable manufacturing overhead as shown in the table remains constant. This means that there will be no change in the variable manufacturing overhead with the installation of new manufacturing facility. But the fixed manufacturing overhead does not impact the business in a favorable way rather it impacts business in an adverse way. This is because after the installation of the new manufacturing facility the fixed manufacturing overhead increases from $301,162,378 to $451,743,568 that represents a variance of 50% which will have an adverse effect on business. Lastly as it can be obtained from the table the total production cost also increases from $950,388,755 to $1,012,960,152 which clearly indicates the fact that the installation of the new manufacturing facility would not be a very good idea as it would increase the total cost of production thus decreasing the total revenue earned by the company (Caamaño-Alegre et al., 2013).

Sales Budget Variance:

Particulars

Actual

Budgeted

Variance

Quarterly Sales Volume

184700

207490

-22790

Unit Selling Price

$6,300

$6,300

$6,300

Total Sales Revenue

$1,163,610,000

$1,307,187,000

($143,577,000)

Remarks

 

 

Adverse

As can be observed from the sales budget variance, the total sales revenue differs from the budgeted sales revenue by a negative amount of $143,577,000. This means that the estimated figure that the organization expected to obtain as a part of the sales revenue was much more than what was actually gained as total sales revenue. Therefore the sales budget variance represents an adverse effect. The reasons for such a disparity may be due to increase in sales on credit or increase in the amount of debts that could not be recovered or decrease in the general market price or change in demand and preference of the consumers (Klychova, Faskhutdinova and Sadrieva 2014).

Material Price Variance:

Particulars

Part 714

Part 502

Total Cost

Actual Material Used

669600

1043700

Standard Price p.u.

$92

$123

Standard Cost for Actual Quantity

$61,603,200

$128,375,100

$189,978,300

Actual Material Cost

$52,362,720

$81,932,260

$134,294,980

Material Price Variance

($9,240,480)

($46,442,840)

($55,683,320)

Remarks

Favorable

Favorable

Favorable

Production Budget

 The material price variance represents a favorable outcome. This indicates that the budget was more or less accurately prepared therefore the estimated figures correctly match with the actual figures incurred.

Material Usage Variance:

Particulars

Part 714

Part 502

Total Cost

Actual Material Used

669600

1043700

Standard Price p.u.

$92

$123

Standard Cost for Actual Quantity

$61,603,200

$128,375,100

$189,978,300

Budgeted Material Cost

$98,263,360

$157,648,608

$255,911,968

Material Usage Variance

$36,660,160

$29,273,508

$65,933,668

Remarks

Adverse

Adverse

Adverse

The material usage variance represents an adverse outcome. This means that the stipulated or budgeted quantity of input that had been fixed by the management was not properly executed. Business had used input in much more quantity than what was estimated, this resulted in the difference between the budgeted and the actual figures.

Direct Labor Rate Variance:

Particulars

Amount

Actual Direct Labor Hours

1191510

Standard Rate per labor hour

$50

Standard Labor Cost for Actual Labor Hours

$59,575,500

Actual Direct Labor Cost

$50,639,200

Material Price Variance

($8,936,300)

Remarks

Favorable

 The direct labor variance represents a favorable outcome. This means that there is no much difference between the budgeted figure and the actual figure.

Direct Labor Efficiency Variance:

Particulars

Amount

Actual Direct Labor Hours

1191510

Standard Rate per labor hour

$50

Standard Labor Cost for Actual Labor Hours

$59,575,500

Budgeted Labor Cost

$96,127,200

Material Price Variance

($36,551,700)

Remarks

Favorable

The direct labor efficiency represents a favorable outcome. This means that there is not much disparity in the estimated figures and the budgeted figures and that the budget had been prepared more or less accurately.

  When the imposed budgetary approach is employed by the management in order to prepare the budget the implication of such a decision has both negative and positive effects. The positive effect of such a decision is that the management is not answerable to anyone in regards to structuring the budget. It can use its own methods and findings to figure out the particular estimations and then implement it in the organization. On the other hand the negative implication of such a decision is that the budget after being prepared by the management is imposed upon the general staff of the organization. No input from the staff at the lower hierarchy of authority is taken into consideration. This may result in dissatisfaction among the employees and the employees may not feel one with the budgetary decisions. Paulo as a production manager may feel the same in case of an imposed budgetary approach and though Paulo may be concerned with the disparities in the budget but as no input was taken from him, he will not be affected by the errors that may have been undertaken while preparing the budget (Mutiganda 2013).

In case of a participative budgetary approach, inputs from all the levels of authority is incorporated and evaluated while preparing a budget. Estimations by the general staff is submitted to the supervisors who in turn submit their evaluated inputs to the management and ultimately with all these inputs the directors of the organization prepare the final budget. In case of such an approach all the employees feel important as the important estimations provided by them are considered by the management. The employees feel motivated and in case of any errors in the budget, each and every staff feel the urgency to find out the particular mistakes committed in the preparation of the budget. In case of Paulo he would feel the same and would be very concerned with the disparities in the budget as he had been an active member in preparing the budget (Bridgelall 2014).

References

Yahya-Zadeh, M., 2012. Comprehensive variance analysis based on ex post optimal budget. Academy of Accounting and Financial Studies Journal, 16, p.65.

Caamaño-Alegre, J., Lago-Peñas, S., Reyes-Santias, F. and Santiago-Boubeta, A., 2013. Budget transparency in local governments: an empirical analysis. Local Government Studies, 39(2), pp.182-207.

Mutiganda, J.C., 2013. Budgetary governance and accountability in public sector organisations: An institutional and critical realism approach. Critical Perspectives on Accounting, 24(7), pp.518-531.

Bridgelall, R., 2014, March. A participatory sensing approach to characterize ride quality. In Sensors and Smart Structures Technologies for Civil, Mechanical, and Aerospace Systems 2014 (Vol. 9061, p. 90610A). International Society for Optics and Photonics.

Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.