Master Budget Brief
- Students should prepare a Master Budget on Excel and provide an analysis of the financial situation of the company, that will demonstrate a clear understanding of management accounting and the learning objectives discussed in this course.
- Key contextual elements should include management accounting, when it comes to operational budgets, cash budgets, pro forma financial statements as well as excel processing.
- Formal Written Report saved and uploaded to Moodle in PDF format.
- You need to develop your company’s master budget for 4 quarter of the year2021, considering all relevant aspects learned during this semester about management accounting.
The chief financial officer of Backpacks is Us, Inc., an important and successful company that manufactures excellent quality backpacks, has relied on you to prepare the Master Budget for this year.
We will take as our starting point the balance sheet from last fiscal year, at 31 of December 2020.
Backpacks is Us, Inc.
Accounts Receivables 1.250.000
Direct Materials (6.000 units) 27.000
Finished Goods (5.000 units) 300.000
Total current assets $1.657000
Plant and equipment 350.000
Accumulated depreciation (straight line) (175.000)
Total assets $1.912.000
Accounts payable 900.000
Notes payable (12 months @8%) 150.000
Income taxes payable 46.000
Interest payable 1.500
Total current liabilities $1.097.500
Capital stock, 15.000 shares outstanding 15.000
Retained earnings 799.500
In order to complete the preparation of the different types of budgets that comprise the Master Budget, the company has provided you with the following essential information:
- The company plans to sell 70.000 backpacks distributed as follows:
First quarter: 18.000 backpacks
Second quarter: 20.000 backpacks
Third quarter: 20.000 backpacks
Fourth quarter: 12.000 backpacks
The sales price of each backpack is $ 100, and all sales are credit sales to be collected in 90 days from month of purchase.
- From the balance sheet we see that the finished goods inventory at the end of the previous year is 5.000 backpacks. The company plans to have an ending inventory equal to 15% of next quarter’s sales. Sales in the first quarter of 2022 are expected to be 19.000 backpacks. There is no beginning or ending balance in work in process.
- The manufacturing costs estimates per backpack are as follows:
Variable cost per backpack:
- Direct material: 2,5 meters of canvas at $4.50 per meter.
- Direct labour: it takes 0.5 hours to complete a backpack at $12/hour.
- Manufacturing overhead per finished backpack: $9/unit
Fixed manufacturing overhead per quarter: $25.000 (including $8.750 depreciation expense). The machines are depreciated using the straight-line method over a period of 10 years.
- The direct material purchases budget is based on production quantity and desired material inventory levels. Beginning and ending balance is set at 6,000 units. All purchases of direct materials are made on account and are to be paid in 90 days from month of purchase.
- Selling and administrative expenses are indicated as follows:
Variable operating expenses: $5 per unit sold
Fixed operating expenses per quarter: $130.000.
- The note payable corresponds to a 12-month $150.000 loan at an annual interest rate of 6% obtained from the bank on November 1, 2020. This note payable plus all the interest accrued must be paid on October 31, 2021. On January 2021, two months interest has already been accrued.
- Income taxes are paid at the end of each quarter. The tax rate is 30%.