2104AFE Management Accounting - Budgeting Assignment Help

BUDGETING ASSIGNMENT (Grant Ltd):

Grant Ltd operates at capacity and makes glass-topped dining tables. At the end of 2018, Grant Ltd.’s management accountant gathered the following data to prepare budgets for the first six months 2019:

1. Units sales per quarter and the selling price per unit are estimated as follows:

                                                  Unit sales                      Price per unit

January                                   2,500                                 $450

February                                 2,800                                 $450

March                                     2,750                                 $480

April                                       2,750                                 $480

May                                        2,800                                 $500          

June                                        2,800                                 $500

July                                         3,000                                 $500

August                                    3,000                                 $500

Sales on November 2018 were 2,200 units and on December 2,400 units at a selling price of $450.

20% of sales are cash sales and 80% are credit sales. From past experience, Grant Ltd collected 40% of credit sales within the month of sale, 30% in the following month and 25% in two months after the month of sale. Allowance for doubtful debts is 5% of credit sales (uncollectible). 

1. The beginning inventories (BI) on 1 January 2019 and the desired ending inventories (EI) at the end of each month are as follows:

            BI (1/1/19)            EI (end of each month) 

Tables:500 (at $300/unit) 20% of following month estimated sales

Wood: 1,400 b.m.            25% b.m. needed for next month’s budgeted production (units)

Glass      500 sheets        20% sheets needed for next month’s budgeted production (units)     

1. Materials and labour requirements 

Direct materials:

Wood: 2 board meters (b.m.) per table

Glass: 1 sheet per table

Direct manufacturing labour: 4 hours per table

1. Costs of direct materials and labour:

Wood: $16 per b.m.

Glass: $22 per sheet

Direct labour: $20 per labour-hour        

1. Direct materials are purchased in the month of production and are paid 50% in the month of purchase and 50% in the following month. Wages and salaries are paid monthly.
2. Variable manufacturing overhead is $28 per direct manufacturing labour-hour. There is also $209,000 in fixed manufacturing overhead costs per month. Fixed costs include $40,000 depreciation of factory equipment. The fixed manufacturing overhead rate is based on the number of units produced budgeted every six months, at the beginning of each semester, calculated dividing the budgeted fixed overhead costs by the budgeted number of units produced  for the semester. Variable and fixed costs are paid in the month incurred.
3. Sales commissions are paid monthly at the rate of 10% of month’s sales revenue. There is $160,000 in fixed non-manufacturing costs (administrative expenses) budgeted per month including $20,000 depreciation costs of office equipment. Variable and fixed non-manufacturing costs are paid in the month incurred.
4. Grant Ltd has estimated the following payments in the first semester 2019:

January: Loan for $40,000 plus interest payable at 31 December 2018 for $2,000 were paid on 2 January 2019. 

March: Dividends $100,000

May: Purchase of land $200,000

June: Purchase of equipment for $300,000

1. Grant Ltd maintain a 18% open line of credit for $80,000. Interests are paid at the end of each month. Grant Ltd maintains a minimum cash balance of $20,000. The company borrows on the first day of the month and repays loans on the last day of the month, both in multiples of $1,000.
2. Grant Ltd’s balance sheet at 31 December 2018 is as follows:

  (*): Accounts payable are 50% of direct materials purchased on December 2018.

Required:

Prepare a monthly master budget for Grant Ltd.’s for the first semester 2019. The following component budgets must be included:

1. Sales revenue budget
2. Production budget (in units)
3. Direct materials usage and purchases budget for each direct materials and total direct materials (in units and dollars)
4. Direct manufacturing labour budget
5. Manufacturing overhead budget
6. Manufacturing overhead rate for the semester
7. Ending finished goods inventory budget (unit cost and total cost) at June 2019.
8. Selling and administrative expenses budget
9. Cash budget
10. Cost of goods sold at 30 June 2019
11. Budgeted income statement for the first semester 2019
12. Budgeted balance sheet as of 30 June 2019 (including separately the two direct materials inventory)

Note. There is no beginning and ending balance of WIP in each month.