Exercise A Chapter 7 Budgeting Blue Book Printing

Exercise A Chapter 7 Budgetingea1lo 72blue Book Printing Is Budget

Identify the core assignment question and remove any rubric, grading criteria, point allocations, meta-instructions, due dates, or repetitive and non-essential lines. The remaining instructions form the basis for the paper.

Calculate the necessary production units, sales budget, inventory needs, procurement planning, and cash flow estimates based on given sales, production, inventory, and cost data. Prepare detailed budgets, including sales, production, purchase, and cash flow projections, with appropriate assumptions and calculations according to standard budgeting principles.

Paper For Above instruction

The process of budgeting is fundamental to effective financial management within organizations, enabling accurate planning, resource allocation, and performance evaluation. This paper explores various aspects of budgeting through several specific exercises, demonstrating practical applications of budgeting principles in manufacturing and sales contexts.

One core aspect of budgeting involves calculating production needs to meet forecasted sales and desired inventory levels. For example, in the case of Blue Book Printing, the company expects sales of 25,000 units with an opening inventory of 5,000 units and a target ending inventory of 7,000 units. The calculation of units to be produced involves adding the sales forecast and desired ending inventory, then subtracting beginning inventory, resulting in a production requirement. Specifically, the units to be produced can be derived by the formula:

Units to be produced = (Sales forecast + Ending inventory) - Beginning inventory. Plugging in the numbers: (25,000 + 7,000) - 5,000 = 27,000 units.

Another crucial element is determining the beginning inventory level when the sales forecast and planned production are known. For instance, if a company forecasts sales of 32,000 units, plans to produce 35,000 units, and desires a 9,000-unit inventory at the end of the period, the beginning inventory can be calculated by re-arranging the inventory equation: Beginning inventory = (Planned production + Beginning inventory) - Sales. Therefore, if the starting inventory is unknown, it can be calculated assuming the end inventory and production plans are set accordingly.

The sales budget, such as for Navigator selling GPS trackers for $50 each with increasing quarterly sales, demonstrates the application of forecasting techniques. Starting with initial sales projections (e.g., 5,000 units in quarter 1), subsequent quarters can be forecasted using growth percentages (5% increase per quarter). The sales budget per quarter is then calculated by multiplying expected units by unit price. For example, for quarter 1: 5,000 units x $50. For quarter 2, the forecasted units would be 5,000 x 1.05 = 5,250 units, and so forth, leading to a quarter-by-quarter sales forecast.

Production budgets, such as for One Device manufacturing remote controls, incorporate expected sales, ending inventory requirements, and beginning inventory considerations. For example, if May sales are forecasted at 600 units and the beginning inventory is aligned with 20% of the following month's sales, production planning must ensure enough units are produced to meet sales and inventory requirements. The calculation of production units involves adding sales to desired ending inventory and subtracting beginning inventory.

Material and cost budgeting, as illustrated by Sunrise Poles, combines production volume with material requirements and costs. If producing 4,000 units in March and 3,700 in April, and each pole requires half a pound of material costing $1.20 per pound, total material needs can be estimated. Additionally, buffer stock policies—such as holding 10% of next month’s material needs—are factored into procurement planning. The total material purchase cost is then derived by multiplying total pounds needed by the unit cost, considering safety stock and finished goods inventory policies.

Estimating direct labor requirements involves calculating total labor hours based on output volume and the standard hours per unit. For example, if each unit requires 2.2 hours and the total direct labor budget is known, the number of units planned for production can be derived by dividing the total hours by hours per unit. For instance, with a direct labor budget of $834,900 at a rate of $11.50 per hour, total hours can be calculated, and the corresponding production volume can then be estimated.

Sales and inventory estimates also depend on planned production and desired stock levels at beginning and end of periods. For instance, if Skyline plans to produce 900,000 units with specific starting and ending inventories, the actual units sold can be inferred by considering the inventory policy, often using the formula: Units sold = Production + Beginning inventory - Ending inventory.

Cash collection and payment schedules hinge upon sales and purchase timing, along with respective collection and payment percentages. For example, Wax On Candles' collection pattern of 60% in the sale month, 30% the following month, and 10% two months later can be applied to sales figures to estimate actual cash inflows in specific months. Similarly, payable schedules, such as those for Dream Big Pillow, which pays 65% of purchases in the month of purchase, require calculating payments based on purchase timing and historical payment patterns.

Preparing flexible budgets involves adjusting fixed and variable costs for different production volumes. Using per-unit costs, such as direct materials of $2, direct labor of $3, and overhead of $1, the budgeted total costs for different production levels can be computed. Budgeted costs at 20,000 and 25,000 units can be explicitly calculated, and a flexible budget for 17,000 units can be prepared using the same variable costs proportionally.

Variance analysis, such as computing the cost variance for producing 5,500 units at a standard cost of $7 per unit with fixed costs of $23,000, helps evaluate performance. The variance is the difference between actual and standard costs, which indicates favorable or unfavorable deviations—an essential aspect of effective budgeting and cost control.

In summary, effective budgeting encompasses numerous interconnected financial planning activities—estimating production requirements, sales and inventory levels, procurement needs, cash inflows and outflows, and performance variances. The exercises outlined highlight critical techniques and calculations used by organizations to manage their financial resources strategically, ensuring operational efficiency and goal achievement.

References

• Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems (13th ed.). McGraw-Hill Education.
• Carmona, S. (2016). Budgeting techniques and performance measurement. Journal of Accounting & Organizational Change, 12(2), 273-293.
• Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.