Financial/Managerial Accounting for International Executive, writing homework help
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