Management Accounting Master budget: Illustration and Exercises
Illustration 1 (Master budget for manufacturing company)
Assume that Adonay company has planned to produce and cell leather bags in the year 2OO1 E.C.
The following data are available:
Sales forecasts for the next year are 450,000 bags at price of Br 280 per unit.
Direct Materials required are:
o Leather : 10 pounds per unit at cost of Br 10 per pound
o Chemicals: 5 pounds per unit at cost of Br 10 per pound
Direct labor: 2 hours per unit at rate of Br 40 per hour
Manufacturing Over head costs composed of:
Indirect materials -- -- -- - -- -- -- - Br 12,000
Indirect labor ---- ------ 16,000
Utilities ------ 8,000
Factory Insurance ------ 10,000
Factory Depreciation ----- 12,000
Total MOH cost 58,000
The selling and administration expenses are anticipated to be Br 86,000 for the year.
Inventory Information:
Beginning (Jan. 1) Ending (Dec. 31)
Finished Bags 50,000* 100,000
Direct materials: Leather 100,000 pd 100,000 pd
Chemical 50,000 pd 50,000 pd
(* The beginning inventory of 50,000 units has cost of Br 220 per unit )
Required: Prepare the master budget of Adonay for the year including the following budget schedules:
a) Sales budget
b) Production budgets
c) DM usage and purchase budgets
d) DL budgets
e) Ending Inventory budgets (determine cost per unit)
f) Budgeted Cost of Goods Sold
g) Budgeted Income Statements
The answers for this illustration will be done in class.
1
Management Accounting Master budget: Illustration and Exercises
Exercise 1
The Suzuki Company in Japan has a division that manufactures two-wheel motorcycles. Their budgeted
sale for model-GP in the next year is 800,000 units. The target ending inventory is 100,000 units, and the
beginning inventory is 120,000 units. The selling price of the company is $60 per unit.
Suzuki buys its DM (i.e. the wheels) from a supplier at $ 16 per wheel. The target ending inventory is
30,000 wheels and the beginning inventory is 20,000 wheels.
The DL consists of:
Assembly($5 per hour) ---- 2 hours per unit
Packing ($8 per hour) ---- hour per unit
MOH costs are applied based on predetermined over head rate (POR) of Br 1.5 per DL assembly hour.
The selling and administration expenses are expected to be Br 200,000 for the year.
Required: Prepare the master budget of Adonay for the year including the following budget schedules:
a) Sales budget
b) Production budgets
c) DM usage and purchase budgets
d) DL cost budgets
e) MOH costs budget
f) Ending Inventory budgets (determine cost per unit)
g) Budgeted Cost of Goods Sold
h) Budgeted Income Statements
2
Management Accounting Master budget: Illustration and Exercises
Illustration 2 (master budget for merchandising company)
Suppose that Salem Company is retailer of TV sets. The company is to prepare quarterly operational
budgets for 21’ Tana model TV sets in the year 2001 E.C.
It forecast to sell 24,000; 20,000; 30,000; and 32,000 units in Quarters I; II; III and IV, respectively.
The selling price will be Br 1500 per unit throughout the year.
The company expects to have 2000 units at the beginning of the year. The target ending inventory
units of each quarter is determined as 10% of the units to be sold in the quarter itself.
Each TV sets is purchased and made ready for sale at cost of Br 1200 per unit. The company
assumes FIFO cost flows.
The operating expenses of the year are anticipated as follows:
- Selling expenses Br 8,000
- Advertising expenses 3,000
- Salary expenses 24,000
- Depreciation expenses 6,000
- Miscellaneous expenses 1,000
Total Br 42,000
The operating expenses are evenly incurred throughout the year.
Required: Prepare the master budget of Salem on quarterly bases for the year including the following
budget schedules:
a) Sales budget
b) Merchandise purchase budgets in units and in birr
c) Ending Inventory budgets
d) Budgeted Cost of Goods Sold
e) Budgeted Income Statements
The answers for this illustration will be done in class.
3
Management Accounting Master budget: Illustration and Exercises
Exercise 2 (master budget for merchandising company)
Bethel PLC merchandises personal computers (PCs). It is to prepare quarterly budgets for the 2001 E.C.
Sales are forecasted to be 150, 120, 90 and 150 PCs in Quarters I; II; III and IV, respectively. The
selling price will be Br 2000 per unit throughout the year.
The target ending inventory units of each quarter is determined as 20% of the units to be sold in the
next quarter following the quarter. The company expects 20 units of beginning and 30 units of
ending inventory for the 2001 e.c.
Each PC is purchased and made ready for sale at cost of Br 1500 per unit. The company assumes
FIFO cost flows.
The operating expenses of the year will be as follows:
- Advertising expenses 30,000
- Salary expenses 72,000
- Depreciation expenses 12,000
- Miscellaneous expenses 6,000
Total Br 120,000
The operating expenses are evenly incurred throughout the year.
Required: Prepare the master budgets on quarterly bases for the year including the following budget
schedules:
a) Sales budget
b) Merchandise purchase budgets in units and in birr
c) Ending Inventory budgets
d) Budgeted Cost of Goods Sold
e) Budgeted Income Statements
Appendix
The cash budget is used to determine the cash inflows (cash receipts) and cash out flows (payments) to
appear in the budget period. The cash flows involve three sources: Operationg, Investing, and Financing
activities.
