ACC 6140 - Case Study - Patio Pillows Company Students: (Moath, Adnan, Leiliane, Thanyathorn, Tareq) REQUIREMENT #1 - PREPARATION OF THE SALES BUDGET Sales Units Sales Price Sales Patio Pillows Company Sales Budget For the Quarter ended March 31, 2021 Month January February March 100,000.00 110,000.00 115,000.00 $ 14 $ 14 $ 14 $ 1,400,000 $ 1,540,000 $ 1,610,000 Type of Sale: Cash Sales 10% Cridit Sales 90% Sales $ $ $ 140,000 $ 1,260,000 $ 1,400,000 $ 154,000 $ 1,386,000 $ 1,540,000 $ 161,000 1,449,000 1,610,000 1st QTR 325,000.00 $ 14 $ 4,550,000 $ $ $ 455,000 4,095,000 4,550,000 REQUIREMENT #2 - PREPARATION OF THE PRODUCTION BUDGET Sales Units Expected Sales April = Ending Finished Pillow Ending Stock = Ending Inventory beginning Inventoey Production Patio Pillows Company Production Budget For the Quarter ended March 31, 2021 Month January February 100,000.00 110,000.00 120,000.00 20% 22,000.00 23,000.00 122,000.00 133,000.00 -20000 -22000 102,000.00 111,000.00 ws Company on Budget ded March 31, 2021 onth March 1st QTR 115,000.00 325,000.00 24,000.00 139,000.00 -23000 24,000.00 349,000.00 -20000 116,000.00 329,000.00 REQUIREMENT #3 - PREPARATION OF THE DIRECT MATERIALS BUDGET Production Materials Per Unit Maintain Ending Stock of Fabric = Ending Inventory beginning Inventoey Purchases of Yard Materials Price Per Yard Purchases Cost Patio Pillows Company Direct Materials Budget For the Quarter ended March 31, 2021 Month January February 102,000.00 111,000.00 1.25 1.25 127,500.00 138,750.00 10% 13,875.00 14,500.00 141,375.00 153,250.00 (12,750.00) (13,875.00) 128,625.00 139,375.00 6.00 6.00 771,750.00 836,250.00 mpany Budget March 31, 2021 onth March 1st QTR 116,000.00 329,000.00 1.25 1.25 145,000.00 411,250.00 15,000.00 160,000.00 (14,500.00) 145,500.00 6.00 873,000.00 15,000.00 426,250.00 (12,750.00) 413,500.00 6.00 2,481,000.0 Case study – Patio Pillows Company Analysis Adnan Alyyan Mo'ath Awawdeh Leiliane Guimaraes Thanyathorn Lapthitisate Tareq Alshurman Department of Business, California Miramar University ACC 6140 – Managerial Accounting Professor Rodney Robinson March 27, 2022 Abstract By studying this case, we learn how this functional tool (budget) begins with the sales budget and ends with the cash budget and financial statements. This functionality helps Patio Pillows integrate its manufacturing operations and achieve the goal of maintaining final inventory. This case study aims to present these three budgets and the sequence of each budget individually: sales, production, and the purchase budget. There are also several benefits to a budget, which are: it acts as an important administrative tool for allocating the resources available to projects, it is an evaluation tool to monitor the performance of already implemented projects, it improves the decision-making process at the beginning of each fiscal year, and its creation is a proactive tool to identify potential threats and problems, Planning for the company's future, in addition to motivating employees. Some of these impacts are provided in this paper in order to present Patio Pillows' budget performance. Keywords: Master budget, inventory, sales budget, manufacturing operations. Case study – Patio Pillows Company Analysis This case study is about Patio Pillows company in Nevada, which makes decorative pillows for outdoor furniture. Outdoor furniture is trendy in Nevada, and the company sells its pillows at home decorating stores and other such as Lowe's. However, the main object of this study is to clarify its budgets and functions based on master, which includes cash, sales, and series budgets. First, budget is a quantitative picture of the plan characterizing incomes and expenses within a certain period and equity which needs to be attracted to achieve planned goals (Kovaleva et al., 2016). As a management tool, the budgeting process coordinates the activities of company's department to meet the business' overall goals (Wild & Shaw, 2013), and it can be: activity-based budget: the cost of individual activities; add-on budget: based on the previous year's budget that has been adjusted for current information; bracket: contingency plans for downside risks; continuous: are based on the most recent info for proper planning and performance; incremental: It is based on the previous year's expenses, and each line item receives the same total adjustment, strategic: adjusted for strategic planning; stretch: based on sales and marketing forecasts higher than estimates; supplemental: for an area that is not included in the central budget; and target: matches significant expenses to the company's goals. Master budgeting usually begins with a sales budget and ends with a cash budget and budget financial statements (Wild & Shaw, 2013). In this context, this case study aims to present how this functional tool can help Patio Pillows integrate its manufacturing operations, delivering the goal to maintain ending stock of fabric for next month's production requirements within three months and a 1st quarter summary. Also, in this paper, students will present who is involved in the budgeting process. Once that is known, budgets help managers communicate plans to employees, allowing employees to coordinate activities across the entire organization. Patio Pillows Budgeting The first figure presents the sales budget including a separate section below which details the type of sales that are anticipated to be made with 10% of the company’s pillows are cash sales, while the remaining 90% represents credit card sales. Figure 1 From: Author, 2022 The second picture contain the production budget for the pillows if Patio Pillows projects sales in April within 120,000 units. Figure 2 From: Author, 2022 On figure 3 is possible to analyze the direct materials purchases budget within at least 150,000 yards of fabric meeting April’s production. Figure 3 From: Author, 2022 As said before, there are also several benefits to a budget, which are: it acts as an important administrative tool for allocating the resources available to projects, it is an evaluation tool to monitor the performance of already implemented projects, it improves the decisionmaking process at the beginning of each fiscal year, and its creation is a proactive tool to identify potential threats and problems, Planning for the company’s future, in addition to motivating employees, however, creating a budget at the beginning of each fiscal year has several limitations as shown below: Budget inaccuracy is one of the major limitations of creating a budget at the beginning of each fiscal year, as it is time-consuming, Target results skew when a particular department fails to achieve budgeted results, does not meet the specific needs of the business. For this reasons, some questions that may have to be answered are: a. What are budgets used for and what should be the driving force behind Patio Pillows in the budgeting process? b. Who in the company (identify positions only) should be involved in the budgeting process? Based on the positions, what responsibilities do each of these individuals have? What are the advantages and disadvantages of creating a budget at the beginning of each fiscal year? Creating a budget at the beginning of each fiscal year offers: • A budget serves as an essential managerial tool for allocating the available resources for the projects (Horngren, Sundem, Alliott, & Phibrick, 2014). • A budget is used as an assessment tool to monitor the performance of already implemented projects. • Creating a budget at the beginning of each fiscal year plays a crucial role in improving decision-making, ultimately facilitating informed decisions (Horngren, Sundem, Alliott, & Phibrick, 2014). • Creating a budget serves as a proactive tool for identifying possible threats and problems likely to confront the business, such as raising adequate cash flow to meet investment needs for the company. • A budget prepared at the beginning of each fiscal year enhances the motivation of the staff because a clear roadmap is defined on how the identified projects will be financed. • Finally, creating a budget at the beginning of each fiscal year helps plan the future of the business. However, creating a budget at the beginning of each fiscal year has several limitations, as outlined below: • Budget inaccuracy is one of the significant limitations of creating a budget at the beginning of each fiscal year (Horngren, et al., 2014). This is because if the business environment changes significantly, for instance, with high inflation rates, then the business sales revenue or business expenditure is highly likely to reverse sharply. Consequently, the created budget will no longer be effective or reliable, and hence the management will be compelled to override the existing (Horngren, et al., 2014). • Time-consuming- creating a budget is a daunting task and a time-consuming exercise, especially in a poorly organized business organization. • Blame for the deviation of targeted results- when a given department fails to achieve the budgeted results, it tends to blame other departments within the organization, ultimately affecting the company's overall performance (Horngren, et al., 2014). • Failure to address the qualitative needs - When creating a budget at the beginning of each fiscal year, the key focus is on improving the financial position (Horngren, et al., 2014). • Budget fails to evaluate if the products and services offered to meet the target customers' needs. Besides these budgets calculated, what other budgets should be included in a manufacturer’s master budget? The following are the budgets that need to be reflected in a manufacturer’s master budget: • The direct labor budget accounts for the cost of direct labor incurred during the production of a good or service. A direct labor budget reveals the cost and hours of direct labor that a company needs during the production of a good or service. The key benefit of a direct labor budget is that it helps a business manage the workers it needs in the production unit. • Direct materials budget- this is a budget that guides the materials that must be purchased by a given period to meet the needs of the production budget. • A sales budget is a form of the budget that estimates the total revenue for a company for a given period (Master budget definition — AccountingTools, 2021). The budget covers the number of products sold and the price at which the products are sold—the sales budget for predicting sales revenue for a company. • Production Budget- this type of budget accounts for the number of units of products that a company must manufacture to meet the targeted consumer demand. The production budget helps understand the materials needed in the production process. • Manufacturing Overhead budget- this type of budget accounts for all costs that a production firm will incur except for raw materials and direct labor (Master budget definition — AccountingTools, 2021). • Selling and administrative expense budget- this type of budget covers accounts for costs incurred from all non-manufacturing units such as sales, marketing, accounting, engineering, and facilities units (Master budget definition — AccountingTools, 2021). Reference Horngren, C. T., Sundem, G. L., Alliott, J. A., & Phibrick, D. R. (2014). Introduction to financial accounting (Eleven Edition ed.). New Jersey: Pearson. Kovaleva, T. . Khvostenko, O. Glukhova, A. Nikeryasova, V. Gavrilov, D. (2016). The Budgeting Mechanism in Development Companies. Look Academic Publishers - International Journal of Environmental & Science Education (11th ed.) n.15. Wild, J. Shaw, K. (2016). Master budgets and performance planning. Managerial Accounting (5th ed.) p. 260. McGraw Hill Education. Horngren, C. T., Sundem, G. L., Alliott, J. A., & Phibrick, D. R. (2014). Introduction to financial accounting (Eleven Edition ed.). New Jersey: Pearson. ACC 6140 - Case Study - Patio Pillows Company Students: (Moath, Adnan, Leiliane, Thanyathorn, Tareq) REQUIREMENT #1 - PREPARATION OF THE SALES BUDGET Sales Units Sales Price Sales Patio Pillows Company Sales Budget For the Quarter ended March 31, 2021 Month January February March 100,000.00 110,000.00 115,000.00 $ 14 $ 14 $ 14 $ 1,400,000 $ 1,540,000 $ 1,610,000 Type of Sale: Cash Sales 10% Cridit Sales 90% Sales $ $ $ 140,000 $ 1,260,000 $ 1,400,000 $ 154,000 $ 1,386,000 $ 1,540,000 $ 161,000 1,449,000 1,610,000 1st QTR 325,000.00 $ 14 $ 4,550,000 $ $ $ 455,000 4,095,000 4,550,000 REQUIREMENT #2 - PREPARATION OF THE PRODUCTION BUDGET Sales Units Expected Sales April = Ending Finished Pillow Ending Stock = Ending Inventory beginning Inventoey Production Patio Pillows Company Production Budget For the Quarter ended March 31, 2021 Month January February 100,000.00 110,000.00 120,000.00 20% 22,000.00 23,000.00 122,000.00 133,000.00 -20000 -22000 102,000.00 111,000.00 ws Company on Budget ded March 31, 2021 onth March 1st QTR 115,000.00 325,000.00 24,000.00 139,000.00 -23000 24,000.00 349,000.00 -20000 116,000.00 329,000.00 REQUIREMENT #3 - PREPARATION OF THE DIRECT MATERIALS BUDGET Production Materials Per Unit Maintain Ending Stock of Fabric = Ending Inventory beginning Inventoey Purchases of Yard Materials Price Per Yard Purchases Cost Patio Pillows Company Direct Materials Budget For the Quarter ended March 31, 2021 Month January February 102,000.00 111,000.00 1.25 1.25 127,500.00 138,750.00 10% 13,875.00 14,500.00 141,375.00 153,250.00 (12,750.00) (13,875.00) 128,625.00 139,375.00 6.00 6.00 771,750.00 836,250.00 mpany Budget March 31, 2021 onth March 1st QTR 116,000.00 329,000.00 1.25 1.25 145,000.00 411,250.00 15,000.00 160,000.00 (14,500.00) 145,500.00 6.00 873,000.00 15,000.00 426,250.00 (12,750.00) 413,500.00 6.00 2,481,000.0 
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