Master Budget Step 1: Sale Budget Expected Sales Volume 3,00

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Prepare a comprehensive master budget for the upcoming fiscal year starting October 1, 2020. The budget should include detailed schedules such as sales forecasts, production plans, direct materials purchases, direct labor, manufacturing overhead, operating expenses, and cash budgeting. The company expects a minimum ending cash balance of $35,000 each month, and the budget must reflect accurate collections, disbursements, and financing activities. Sales are projected to be- 30,000 units for Q1, with subsequent increases each quarter. Additional specifics encompass sales prices, inventory policies, cost of direct materials and labor, manufacture overhead, selling, and administrative expenses, as well as anticipated capital expenditures and dividend payments. Note that all calculations should be done on a quarterly basis, and the cash budget must incorporate collection terms, payment schedules, and minimum cash requirements. Focus on creating realistic estimates based on provided data, adjusting for collection percentages, inventory policies, and payment patterns, ensuring the budget aligns with company policy and financial objectives.

Paper For Above instruction

The process of preparing a master budget is integral to effective financial planning and control within a manufacturing or trading enterprise. For the upcoming fiscal year starting October 1, 2020, a comprehensive budget encompassing sales, production, purchasing, labor, overhead, operating expenses, and cash flows must be developed. This paper delineates the creation of such a master budget based on provided data, emphasizing key components, assumptions, and analytical considerations essential for accurate financial forecasting.

Sales Budget

The foundation of the master budget is the sales forecast, which projects sales units and revenue. Based on the data, forecasted sales volume starts at 30,000 units in Q1, increasing with seasonality factors, especially during holiday periods like Father’s Day. Each quarter’s sales in units are calculated considering a 20% growth pattern, with sales price fixed at $20 per unit, leading to quarterly revenues of $600,000, $660,000, $720,000, and $780,000 respectively. This projection is crucial as it influences subsequent budget components, such as production and cash collections.

Production Budget

The production schedule must ensure adequate inventory to meet forecasted sales and buffer stock, adhering to a policy where ending inventory equals 20% of next quarter’s sales. Beginning inventory for each quarter is set at 20% of current quarter’s sales. Production units are then derived by adding desired ending inventory to forecasted sales and subtracting beginning inventory. For instance, Q1 production must cover forecasted sales plus desired ending inventory minus beginning inventory, which leads to production quantities for each quarter. The calculations account for seasonal fluctuations and inventory policies, ensuring that production aligns with sales and inventory goals.

Direct Material Purchases

The direct materials budget calculates the raw materials needed for production, considering inventory policies where ending raw materials inventory equals 30% of the next quarter’s production needs. Each finished unit requires 3 shaves, each costing $1.50, translating into a direct material cost of $4.50 per unit. The total raw materials required for each quarter are derived based on production units, and the desired ending inventory is computed accordingly. Payments for raw materials are scheduled so that 50% is paid in the purchase quarter, with the remaining 50% paid in the subsequent quarter. This approach ensures efficient cash management and aligns payment timing with procurement activities.

Direct Labour Budget

The direct labour budget estimates labour hours and costs based on production. Each unit consumes 0.10 labour hours at a wage rate of $15 per hour. Multiplying the required production units by the hours per unit yields total labour hours per quarter, which multiplied by the hourly rate produces total direct labour costs. Labour schedules are synchronized with production plans, reflecting seasonal variations and ensuring sufficient staffing and budget control.

Manufacturing Overhead Budget

Manufacturing overhead includes variable and fixed costs. Variable overhead costs are computed based on labour hours, e.g., indirect labour and materials costs per labour hour. Fixed costs include wages, utilities, insurance, depreciation, and other expenses, which remain constant per month. Summing variable and fixed costs yields total manufacturing overhead for each quarter. Calculations consider hourly labour use, with overhead allocated appropriately, and ensure overhead costs are accurately reflected in product costing and profit analysis.

Operating Expenses Budget

Operating expenses encompass selling, general, and administrative (SG&A) costs, which include sales commissions, freight, advertising, salaries, utilities, insurance, depreciation, and miscellaneous expenses. The budget adjusts for seasonal variations, with projected sales-driven expenses. For example, sales commissions are proportional to units sold ($1 per unit), while fixed expenses like salaries and utilities are allocated monthly, summing to quarterly totals. This schedule assists in estimating total operating expenses to gauge profitability accurately.

Budgeted Income Statement and Cash Budget

The income statement consolidates revenues, cost of goods sold (COGS), gross profit, operating expenses, and net income. COGS is derived by multiplying the unit cost ($44 per unit) by expected sales units. Operating expenses include all SG&A costs, with budgets derived from prior estimates. The cash budget details monthly cash inflows and outflows, considering collections (50% in the quarter of sale, 30% in the following quarter, and 20% in the subsequent quarter), disbursements, financing activities such as borrowing for working capital or capital expenditures, and maintaining a minimum cash balance of $35,000.

In conclusion, constructing such a detailed master budget requires integrating various schedules and assumptions to produce a financial plan that mirrors operational realities. The plan serves as a vital tool for management to monitor financial performance, allocate resources efficiently, and achieve strategic objectives while maintaining fiscal discipline and liquidity.

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