Sales Budget Coop Awards Produces Brass Plaques They Operate
Sales Budgetcoopie Awards Produces Brass Plaques They Operates In 3 R
Coopie Awards produces brass plaques and operates across three regions of the country: Western, Central, and Eastern. Each regional sales manager provides estimates for sales volume, with the western region predicting 20,000 plaques, the central region 10,000 plaques, and the eastern region 15,000 plaques. Each plaque sells at a unit price of $35. The task involves preparing the sales budget, production budget, direct materials budget, direct labor cost budget, cost of goods sold budget, selling and administrative budget, and final budgeted income statement for the upcoming year, incorporating projected sales, inventory levels, costs, and expenses. Additionally, an analysis of actual results against the budget, including the creation of a flexible budget, is required to assess variances and overall performance.
Paper For Above instruction
Introduction
The process of preparing comprehensive budgets is essential for effective financial planning and control in manufacturing organizations. For Coopie Awards, which specializes in producing brass plaques across three major regions, systematic budgeting assists in aligning operational activities with strategic objectives, managing resources efficiently, and evaluating performance through variance analysis. This paper details the step-by-step development of the sales budget, production budget, direct materials budget, direct labor cost budget, cost of goods sold budget, and selling and administrative expenses, culminating in a projected income statement. Furthermore, it addresses how to analyze actual results against the budget to identify variances and inform managerial decisions.
Sales Budget
The sales budget forecasts total revenue based on estimated sales volumes and unit selling prices. For Coopie Awards, sales estimates per region are as follows: Western (20,000 plaques), Central (10,000 plaques), and Eastern (15,000 plaques), with each unit priced at $35. The total units expected to be sold annually sum up to 45,000 units (20,000 + 10,000 + 15,000). Accordingly, total sales revenue is calculated by multiplying the total units by the unit price: 45,000 units x $35 = $1,575,000 (see Table 1).
| Region | Estimated Sales Volume | Unit Price | Total Sales |
|---|---|---|---|
| Western | 20,000 | $35 | $700,000 |
| Central | 10,000 | $35 | $350,000 |
| Eastern | 15,000 | $35 | $525,000 |
| Total | $1,575,000 | ||
Production Budget
To meet anticipated sales while maintaining desired inventory levels, the production budget considers beginning inventory, expected sales, and ending inventory. Starting with projected sales of 45,000 units and desired ending inventory of 5,000 units, with a beginning inventory of 3,000 units, production units are calculated as follows:
- Required sales: 45,000 units
- Plus: desired ending inventory: 5,000 units
- Less: beginning inventory: 3,000 units
- Equal: units to produce = 47,000 units
This ensures sufficient stock to meet sales demand and inventory targets (see Table 2).
| Description | Units |
|---|---|
| Sales | 45,000 |
| Plus: desired ending inventory | 5,000 |
| Total units needed | 50,000 |
| Less: beginning inventory | 3,000 |
| Units to produce | 47,000 |
Direct Materials Budget
Each brass plaque requires 96 square inches of brass sheet, with the cost per square inch being $0.12. To produce 47,000 plaques, the total square inches needed are:
- Units to produce: 47,000
- Per unit: 96 square inches
- Total required: 47,000 x 96 = 4,512,000 square inches
Considering inventory levels, beginning inventory is 240,000 square inches, and desired ending inventory is 200,000 square inches. The required purchases are calculated as:
- Total needed: 4,512,000 + 200,000 = 4,712,000 square inches
- Less: beginning inventory: 240,000
- Units to purchase: 4,472,000 square inches
- Cost of materials: 4,472,000 x $0.12 = $536,640
| Description | Square Inches |
|---|---|
| Total required (production + desired ending inventory) | 4,712,000 |
| Less beginning inventory | 240,000 |
| Units to purchase | 4,472,000 |
| Cost per square inch | $0.12 |
| Total cost of direct materials | $536,640 |
Direct Labor Cost Budget
Producing 47,000 plaques involves engraving each with 12 minutes of labor. The total labor hours are:
- Units to produce: 47,000
- Minutes per unit: 12
- Total minutes: 47,000 x 12 = 564,000
- Hours: 564,000 / 60 = 9,400 hours
At a labor rate of $11.00 per hour, total direct labor cost is:
- 9,400 hours x $11.00 = $103,400
| Description | Hours |
|---|---|
| Hours required for production | 9,400 |
| Hourly rate | $11.00 |
| Total direct labor cost | $103,400 |
Cost of Goods Sold Budget
Starting inventory for finished goods was $54,000, and work-in-process inventory was $47,000 at the beginning of the period. The desired ending inventories are $50,000 for finished goods and $49,000 for work in process. Factory overhead is budgeted at $126,000. The costs are calculated as follows:
- Direct materials used: $536,640 (from above)
- Direct labor: $103,400
- Factory overhead: $126,000
- Total manufacturing costs: $266,800
- Add: beginning WIP inventory ($47,000)
- Less: ending WIP inventory ($49,000)
- Cost of goods manufactured: $264,800
This figure is then used to determine cost of goods sold by adjusting for finished goods inventories:
- Beginning finished goods inventory: $54,000
- Add: cost of goods manufactured: $264,800
- Less: ending finished goods inventory: $50,000
- Budgeted cost of goods sold: $268,800
Selling and Administrative Budget
Selling expenses include commissions, advertising, and other expenses. Commissions are 7% of sales ($1,575,000 x 0.07 = $110,250). Advertising cost is 18% of sales ($1,575,000 x 0.18 = $283,500). Miscellaneous selling expenses are $1,750 plus 4% of sales ($1,750 + $63,000). Office salaries are fixed at $12,000 per month, totaling $144,000 annually. Office supplies are 5% of sales ($1,575,000 x 0.05 = $78,750), and miscellaneous administrative expenses are $1,400 per month, totaling $16,800 annually, plus 2% of sales ($31,500). The total selling and administrative expenses are then summed accordingly.
| Description | Amount |
|---|---|
| Sales commissions | $110,250 |
| Advertising expenses | $283,500 |
| Miscellaneous selling expenses | $1,750 + $63,000 = $64,750 |
| Total selling expenses | $458,500 |
| Office salaries | $144,000 |
| Office supplies | $78,750 |
| Miscellaneous administrative expenses | $16,800 + $31,500 = $48,300 |
| Total administrative expenses | $271,050 |
| Total selling and administrative expenses | $729,550 |
Budgeted Income Statement
Based on the above budgets, the income statement reflects sales revenue of $1,575,000, minus cost of goods sold ($268,800), to derive gross profit. Deducting total selling and administrative expenses ($729,550) yields operating income. After accounting for income taxes at 40%, net income is obtained.
| Item | Amount |
|---|---|
| Sales Revenue | $1,575,000 |
| Cost of Goods Sold | $268,800 |
| Gross Profit | $1,306,200 |
| Selling & Admin Expenses | $729,550 |
| Income from Operations | $576,650 |
| Income Tax (40%) | $230,660 |
| Net Income | $345,990 |
Analysis of Actual Results and Variance
In the current year, Coopie Awards sold 43,000 plaques, slightly below the projected 45,000 units, resulting in $1,548,000 in sales, which is $27,000 unfavorable compared to the budgeted $1,575,000. Variance analysis indicates that sales volume was slightly under expectations, possibly affecting overall profitability. Cost control measures led to favorable variances in direct materials ($20,400 savings) and direct labor costs ($4,200 savings). Overhead costs remained on budget. The operating income was $129,200, substantially higher than the budgeted $102,050, resulting in a favorable variance of $27,150. Conducting a flexible budget analysis allows managers to compare actual costs at the actual sales volume and identify areas for operational improvement.
Conclusion
Effective budgeting encompasses detailed planning across various operational domains, including sales, production, materials, labor, and administrative expenses. The case of Coopie Awards demonstrates the importance of accurate estimations and variance analyses for achieving corporate financial goals. Regular comparison of actual results against budgets, supplemented by flexible budgeting techniques, helps identify variances' causes and supports strategic decision-making to optimize performance in a competitive manufacturing environment.
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