On The Beach manufactures swimwear and accessories for men and women. They operate out of rented premises in Currumbin Creek Road where the factory is split into a manufacturing and storage area and a retail space.
The business produces 4 products:
- One-piece swimsuits for women
- Board shorts for men
- Beach Towels
- Beach Bags
You, as the management accountant for the firm, have been asked to prepare a range of budgets for the 2019 year. The following information has been gathered:
Expected sales volume (number of units) to be sold during 2019:
| Sales | One-piece | Board shorts | Towels | Beach Bags |
| January 2019 | 1,800 | 1,600 | 200 | 400 |
| February 2019 | 1,400 | 1,100 | 180 | 300 |
| March 2019 | 1,300 | 1,160 | 160 | 260 |
| April 2019 | 1,000 | 1,000 | 120 | 140 |
| May 2019 | 400 | 600 | 60 | 80 |
| June 2019 | 400 | 500 | 40 | 40 |
| July 2019 | 400 | 500 | 40 | 40 |
| August 2019 | 600 | 400 | 40 | 80 |
| September 2019 | 1,300 | 1,160 | 160 | 260 |
| October 2019 | 1,200 | 1,100 | 180 | 300 |
| November 2019 | 1,200 | 1,100 | 180 | 300 |
| December 2019 | 1,500 | 1,200 | 200 | 400 |
| January 2020 | 1,600 | 1,400 | 220 | 440 |
| February 2020 | 1,600 | 1,400 | 200 | 400 |
| One-piece swimsuits | Board short | Towel | Beach Bag | |||
| Selling Price | $100 | $80 | $50 | $45 | ||
| Product | One-piece swimsuits | Board short | Towel | Beach Bag | ||
| Direct Materials & Direct Labour per unit | ||||||
| Fabric | $20.75 | $31.25 | $26.25 | $25 | ||
| Elastic/Trim | $13.50 | $3.00 | $5.25 | $1.5 | ||
| Direct Labour (sewing time/machine hours)
|
1 hour | 0.75 hours | 0.4 hours | 0.6 hours | ||
| Other Cost information: | Production Related Costs | Operating Costs | ||||
| Direct Labour | $28/hour | |||||
| Indirect Labour | $1/ machine hour | |||||
| Indirect Materials | $2/ machine hour | |||||
| Utilities | $450/month | $50/month | ||||
| Insurance | $2,200/year | $6,000/year | ||||
| Factory Supervisor’s Salary | $54,000/year | |||||
| Administration Staff Wages | $2,500/month | |||||
| General Office Expenses | $1,500/month | |||||
| Rent | $5,600/month | $1,400/month | ||||
| Repairs and Maintenance | See below | |||||
Inventory: At the end of each month the business plans to have 50% of the following month’s sales units in stock as finished goods and 75% of the direct materials required for the next month’s production.
Cash Collections: 20% of sales are through the retail outlet at the factory. These customers pay for their purchases at the time of sale. The remainder of sales are to businesses that resell On The Beach products. Credit is extended to all business customers. It is estimated 60% of these sales are collected in the month of sale and the remaining 40% are collected in the following month.
Cash Payments: All purchases, other than the purchase of direct materials, are paid at the time the expense is incurred. It is estimated 30% of accounts payable will be paid in the month the direct materials are purchased and the remaining 70% will be paid in the following month.
The interest rate payable on the loan is 8% per annum. Interest is paid monthly. The loan is on an interest only basis and the principle can be repaid at any time.
Depreciation of plant and equipment totals $10,000 for the year. Depreciation is recorded monthly.
Repairs and maintenance related to manufacturing plant and equipment is estimated to be $2,500 each quarter payable in March, June, September, and December.
Variable manufacturing overhead is allocated based on machine hours. Fixed manufacturing overhead is allocated based on units of production. Ignore GST and Income Tax. Round amounts other than unit costs to nearest dollar value.
The opening Balance Sheet is provided below:
| On The Beach
Balance Sheet As at 31 December 2018 |
|
| Assets | |
| Current Assets | |
| Cash | 42,250 |
| Accounts Receivable | 123,650 |
| Finished Goods Inventory | 99,150 |
| Materials Inventory | 114,375 |
| Total Current Assets | $379,425 |
| Non-current Assets | |
| Equipment | 85,000 |
| Less: Accumulated Depreciation | ( 8,000) |
| Total Non-Current Assets | $77,000 |
| Total Assets | $456,425 |
| Liabilities & Shareholder Equity | |
| Current Liabilities | |
| Accounts Payable | 92,500 |
| Total Current Liabilities | $92,500 |
| Long-Term Liabilities | |
| Bank Loan | 185,000 |
| Total Long-Term Liabilities | $185,000 |
| Total Liabilities | $277,500 |
| Shareholders’ Equity | |
| Share Capital | 150,000 |
| Retained Earnings | 28,925 |
| Total Shareholder Equity | $178,925 |
| Total Liabilities & Shareholders’ Equity | $456,425 |
Required:
Using the Excel template provided, prepare the following budgets for the twelve-month period from January 2019 to December 2019. The first worksheet should contain your raw data and assumptions and all future worksheets should be linked to this data. Use a different worksheet for each budget. Show all calculations and use Excel functions where possible. While you should use examples in your text as a guide, the key to using spreadsheets is that they are structured so that others can use them and follow the flow of information without difficulty.
- Monthly Sales Revenue and Cash Collection Budget
- Production Budget in Units
- Direct Materials and Cash Purchases Budget
- Direct Labour Budget
- Manufacturing Overhead Budget (break into variable and fixed components)
- Monthly Operating Cost Budget
- Ending Inventory budget for Finished Goods
- Cost of Sales Budget
- Budgeted Income Statement for the year ended 31 December 2019
- Monthly Cash Budget
Your budget spreadsheet must be submitted in Excel Format.
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