Bus M02c Managerial Accounting Assessment Project

Bus M02c Managerial Accountingslo Assessment Projectrandys Kayaks

Use the above information to prepare the following components of the master budget: a. Sales budget with a schedule of expected cash collections for each quarter and the year as a whole b. Production budget for each quarter and the year as a whole c. Direct materials purchases budget with a schedule of expected cash disbursements for materials for each quarter and the year as a whole d. Direct labor budget for each quarter and the year as a whole e. Manufacturing overhead budget with expected cash disbursements for each quarter and the year as a whole f. Ending finished goods inventory budget for the year g. Selling and administrative expense budget with expected cash disbursements for each quarter and the year as a whole h. Cash budget for each quarter and the year as a whole i. Budgeted income statement for the year j. Budgeted balance sheet for the end of the year 2. Prepare a brief memo to management with specific comments and/or recommendations relating to the budget.

Paper For Above instruction

Introduction

The preparation of a comprehensive master budget is an essential component of managerial accounting, especially for manufacturing firms like Randy’s Kayaks, Inc. It enables management to forecast financial outcomes, plan for resource needs, and assess operational efficiency. This analysis covers the creation of key budget components based on Randy’s Kayaks’ financial and operational data for 2012, including sales, production, purchasing, labor, overhead, and cash flows, culminating in an income statement and balance sheet projection. Additionally, a management memo provides strategic insights and recommendations to optimize financial performance.

Sales Budget and Cash Collections

The sales budget estimates sales volume and revenue for each quarter based on forecasted kayak sales. For each quarter, sales volume is multiplied by the projected unit price of $400. Expected cash collections are segmented into 40% collected in the quarter of sale and 60% in the subsequent quarter. For example, if sales in Q1 are 2,000 kayaks, revenue is $800,000, with $320,000 collected in Q1 and $480,000 in Q2. Summing these collections yields total cash inflows for the year, which influence cash flow planning.

Production Budget

The production budget determines the number of kayaks to manufacture each quarter to meet sales and inventory policies. Beginning inventory, desired ending inventory (10% of next quarter’s sales), and forecasted sales are used to calculate quarterly production needs. For instance, if Q1 sales are 2,000 kayaks, and beginning inventory and desired ending inventory are considered, production is adjusted accordingly to ensure sufficient inventory levels and meet sales demands.

Direct Materials Purchases Budget

This budget calculates the quantity of raw materials needed based on production schedules. Each kayak requires 10 pounds at $3 per pound. The desired ending raw materials inventory, set at 40% of next quarter’s production needs, influences purchase quantities. Cash disbursements depend on the 70% paid in the purchase quarter and 30% in the following quarter, necessitating detailed scheduling to ensure timely payments and adequate inventory.

Direct Labor Budget

Direct labor costs are based on forecasted production, with each kayak requiring 10 hours at $20 per hour. The labor budget projects total labor hours needed each quarter, considering efficiency and production levels. This informs payroll expenses and labor resource planning, aligning with production schedules for operational efficiency.

Manufacturing Overhead Budget

Manufacturing overhead includes variable and fixed costs. Variable overhead, at $5 per direct labor hour, varies with production volume, while fixed overhead, including depreciation of $9,000 per quarter, is stable. Expected cash disbursements encompass variable costs and the cash portion of fixed overhead, used for budgeting purposes to ensure adequate capital allocation and cost control.

Ending Finished Goods Inventory Budget

This budget values the ending inventory of finished goods at the forecasted sales price, considering production cost and desired inventory levels. It helps in assessing inventory investment and impacts cash flow and balance sheet projections.

Selling and Administrative Expense Budget

Operating expenses include variable selling expenses of $25 per kayak and fixed expenses such as insurance ($45,000 per quarter), sales salaries ($30,000 per quarter), and depreciation ($6,000 per quarter). Cash disbursements are tracked for expenses paid during each quarter, assisting in cash flow management.

Cash Budget

The cash budget consolidates all cash inflows and outflows, including sales collections, material purchases, operating expenses, equipment purchases, dividend payments, and loan activities. Beginning cash balances, minimum requirement of $50,000, and borrowing and repayment strategies are incorporated to maintain liquidity and optimize interest costs.

Budgeted Income Statement

This statement integrates sales revenue, cost of goods sold (based on standard costs), operating expenses, and interest on borrowed funds to forecast net income. It provides insight into profitability under planned operations.

Budgeted Balance Sheet

Projected end-of-year balances include assets such as accounts receivable, inventory, and plant assets, alongside liabilities and equity. It reflects the financial position based on the operational budgets and financing strategies implemented during the year.

Management Recommendations

Strategic analysis of the budgets highlights potential areas for efficiency improvements, cost control, and liquidity management. Recommendations include optimizing inventory levels to reduce carrying costs, improving collection procedures to enhance cash inflows, and carefully planning equipment purchases to avoid unnecessary financing costs. Additionally, exploring options to reduce variable costs and negotiating better terms with suppliers can enhance profitability.

In conclusion, the comprehensive budgeting process provides a structured approach to financial planning, enabling Randy’s Kayaks to align its operational goals with financial realities, manage cash flow effectively, and ultimately enhance shareholder value.

References

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