Financial/Managerial Accounting for International Executive, writing homework help

Dec 10th, 2016
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ACTi 6691

Financial/Managerial Accounting for International Executive

Case

In this case a full set of budgets will be prepared and presented in appropriate format.  Reports will be prepared to explain how budget numbers were determined.   The following are general requirements for this budget case.  Specific requirements are listed after the relevant case data. 

·  Read the case and analyze the information.

·  Prepare an operating budget in standard “income statement” format. 

·  Prepare a narrative report (or notes to the income statement) addressing why/how quantitative items were selected.  The following items must be explained:

1.  Sales Forecast

2.  Purchases budget (raw materials, labor, all resources)

3.  Operating Expenses 

·  Prepare a cash budget using any acceptable format.  The following items must be explained or shown on the budget:

1.  The process by which cash inflows were projected.

2.  The process by which cash outflows were projected.

3.  The process by which financing, if applicable, was determined.

4.  How interest and other financing charges were calculated.

·  Prepare a capital budget using any acceptable format.

You will be graded on your understanding of the underlying concepts related to determining budget amounts (for example, how purchases are determined) as well as your ability to prepare and explain standard business reports.  The rubric attached as the last page of this document will be used to grade the case. 

 

Harvey’s Budget1

Harvey Manufacturing manufactures and sells two industrial products:  a self-balancing screw driver and a self-balancing saw.  Both products are manufactured in a single plant. 

Harvey’s general manager, Mr. Lipscomb, and president, Mr. Owens, want a budget prepared for the fiscal year 2013.  They have asked various employees to gather information that they believe will be necessary for preparation of a budget.  The information is presented below. 

Neither Mr. Lipscomb nor Mr. Owens is skilled in budget preparation.  Both executives have used budgets and have participated to some degree in budget preparation in prior years, but neither has prepared a full budget. 

Sales and selling price per unit

Historical sales for 2012 the two products are shown below. 

Harvey’s sales typically peak in the summer months, beginning with May.  Harvey’s general manager, Mr. Lipscomb, recommends that the budget be prepared with the units sold in the high sales months of May, June, and July be used as the bases for determining the annual forecast.  Mr. Lipscomb’s recommendation is that annual sales be budgeted at 64,000 per month for screwdrivers and 42,000 per month for saws. 

Mr. Lipscomb also believes that the budgeted selling price per unit should be equal to the highest selling price that could be achieved in 2012.  He would like to budget 102 per unit for screwdrivers and 130 per unit for saws.  Mr. Lipscomb states that his management team experimented with pricing in the prior year, beginning with the first month of the year.

You review the unit sales and unit selling price information for 2012 and recommend a budget based on 60,000 units of screwdrivers at 100 each and 40,000 units of saws at 125 each.  Mr. Lipscomb challenges your conclusion.  Likewise Mr. Owens, the company president, would like to hear an explanation of the budget numbers and how or why you calculated those numbers. 

Production Requirements

Each unit produced requires the following materials, labor, and overhead, all of which is variable. 

Inventories

Inventories are listed below.  The beginning inventories are the actual amounts on hand at the beginning of the year.  The ending inventories shown are the amounts that the operations manager has determined to be necessary to ensure smooth production processes.

Other information

  Fixed manufacturing overhead

Fixed manufacturing overhead is 214,000, including 156,000 of non-cash expenditures.

Fixed manufacturing overhead is allocated on total units produced.

Beginning cash is 1,800,000.

Sales are on credit.  Sales are collected 50 percent in the current period and the remainder in the next period.  There are no bad debts. 

Sales for the last quarter were 8,400,000. 

Purchases for direct materials and labor costs are paid for in the quarter acquired.

Manufacturing overhead expenses are paid in the quarter incurred. 

Selling and administrative expenses are all fixed and are paid in the quarter incurred.

Estimated selling and administrative expenses for the next period are 340,000 per quarter, including 90,000 of depreciation. 

REQUIREMENTS:

1.  Prepare a sales budget in good form.

2.  Prepare a narrative report explaining how your sales budget was determined.  Use the table above in your analysis.  (Hint:  Many companies would develop their budgets using average sales and average unit costs.) 

Whatever budget determination method you use should be explained.  In your explanation, you should include a discussion of why you believe sales and selling prices fluctuated last year. 

3.  Prepare a production budget in units.

4.    Prepare a purchases budget.  Remember that you will need to purchase enough materials to have the required ending inventories shown.  You will also need to purchase enough to manufacture and sell the products on your sales forecast.  Do not forget that you have beginning inventories. 

5.  Prepare a narrative report explaining how you prepared the purchases budget.  Be as detailed as necessary to be sure that the president and general manager will understand the calculations and costs.

6.    Prepare a budgeted income statement. 

7.  Prepare a contribution margin income statement.

8.  Prepare a narrative report explaining how the expenses on the income statement were determined. 

9.  Prepare a cash budget.  Be sure that you show all cash inflows and outflows. 

10.  Prepare a narrative report explaining your cash budget process.

11.  If necessary, prepare a capital expenditure budget.  Explain your entries.  Use only the facts in this case to prepare the budget. 

Summary:

Your finished  case will consist of six or seven budgets (a sales budget, a production budget in units, a purchases budget, a budgeted income statement, a contribution margin income statement, a cash budget, and, if necessary, a capital expenditure budget.) 

You will also have four or five narrative reports (a sales budget report, a purchases budget report, an income statement report, a cash budget report, and an explanation of your capital budget, if necessary).

Narrative reports are reports that are in the form or a white paper that clearly explains the numeric entries on your budgets.  The length of the narrative reports will depend on the particular report.  In general, you should be able to prepare the sales budget report on one or two pages, the purchases budget report on one or two pages, the income statement report on one page, and the cash budget report on one page.  In this case, the capital budget report would be less than one page.  You should not worry if one of your reports is more or less than the recommendation given here—just be sure you cover all of the important points and satisfactorily explain the numeric entries in your budget.  Also, be sure you explain the process of “how” your numbers were determined.  In this regard, it is not necessary or desirable to explain the exact calculations.  Consider your audience and prepare a report that would be suitable for executives making plans and decisions for the upcoming year.   

1Harvey’s budget is adapted from a published case.  (Source and citation are available upon request to faculty only). 

MBAi 6691

Date Scored

Student:

Case Grading Rubric

Criteria for Case

Meets Expectations

Partially Meets Expectations

Fails to Meet Expectations

Comments/Score

Content Analysis (worth 40% of the case grade)

Analysis addresses all aspects of case in sufficient depth.

Analysis addresses most aspects of case in sufficient depth.

Analysis does not address most aspects of case and/or fails to do so in sufficient depth.

Content Solution (worth 40% of the case grade)

Described solution demonstrates an understanding and correct use of problem solving skills

Described solution demonstrates a sufficient level of problem solving abilities but fails to address correctly as aspects of the case.

Described solution does not demonstrate an acceptable level of problem solving abilities and the ability to use case information correctly.

Presentation Style (worth 20% of the case grade)

No significant errors in presentation style, consistent with case requirements and consistent with business standards

Errors in presentation style, compliance with case requirements, and normal business standards

The presentation was limited, demonstrated a minimal effort to meet case requirements and present your solution in an acceptable business style.

Late Submission - 10% per day regardless of the reason for the late submission.

Total Points


Tutor Answer

(Top Tutor) Selenica
School: Boston College
PREMIUM TUTOR

Hi there!Attached, please find the completed case study in a Word file. All questions have been answered fully and completely; every figure that was required has been included, with calculations and form displayed as per the rubric.I have also included the Excel document that contains all of my work that generated the figures, graphs, and tables. :)I did not have time to put together a powerpoint presentation. That was not part of the original bid, and in the end, I simply did not have the time to do the extra work. Thanks again,Selenica

1. Sales budget

Sales Budget to Lipscomb’s Specifications
Selling
Unit
Total
Price
Sold
Revenues
$102
64,000
$6,528,000
Screwdriver
$130
42,000
$5,460,000
Saws
$11,988,000
2. Narrative report
Previous sales from 2012 indicate that the average sales and costs of each quarter
is used for preparing sales budget for 2013. As manufacturing processes rely heavily on
the budget, it is crucial to assess with as much accuracy as possible the most likely
outcome.
According to Mr. Lipscomb, sales for screwdrivers and saws should be 64,000
and 42,000 units per month, respectively. Let us consider a comparison of sales-permonth from 2012 alongside Mr. Lipscomb’s predictions:

Jan
Feb
Mar

Screwdriver
2012
2013
20100
64000
20000
64000
19900
64000

2012
13500
13000
13500

2013
42000
42000
42000

Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

19000
21500
22000
22000
20000
19500
19000
19000
18000

12000
13000
14000
15000
14500
13500
13000
12500
12500

42000
42000
42000
42000
42000
42000
42000
42000
42000

64000
64000
64000
64000
64000
64000
64000
64000
64000

Saws

It is not clear, from any rational observation, why Mr. Lipscomb would base a
sales projection on numbers that have not only never been achieved previously, but have
zero indication of being achievable in the near future. The side-by-side comparison is
daunting in scope: there is very little range between the actual sales figures for saws and
screwdrivers in 2012.

It is therefore more sane, and much more credible, to instead base projected sales
quarterly. As noted, my proposal was 60,000 and 40,000 quarterly, or roughly 20,000
screwdrivers per month and 13,333 saws per month. These figures roughly align with
what was observed in previous periods.

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Units
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000
20000

Product Sales for 2013
Screwdriver
SP
Units
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
100
13333
$
24,000,000

Saws
SP
125
125
125
125
125
125
125
125
125
125
125
125
$ 20,000,000

3. Production budget in units
Production Budget (units), 2013

Budgeted unit sales
Add target ending finished goods inventory
Total required units
Deduct beginning finished goods inventory
Units of finished good to be produced

Product
Screwdriver Saws
60,000
40,000
25,000
10,000
85,000
50,000
20,000
8,000
65,000
42,000

4. Purchases budget

Direct Material Usage Budget in Quantity and Dollars, 2013
Material
Metal
Plastic
Handles
Total
Physical Units Budget
Direct Materials: Screwdrivers
325,000
195,000
65,000
585,000
294,000
Direct Materials: Saws
168,000
126,000
To be used in production
493,000
321,000
65,000
879,000
Cost Budget
Available from beginning direct materials inventory (under a FIFO cost-flow assumption)
Metal: 320,000 x $8
$2,560,000
Plastic: 29,000 x $5
$145,000
Handles: 6,000 x $3
$18,000
To...

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