ACC 202 Final Project Solutions - You are a manager for Peyton Approved, a pet supplies manufacturer

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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