Carter Productions Capacity Analysis

This assignment analyzes Carter Productions' capacity utilization, the financial implications of a special order from William Distributors, and the contribution margin per unit for different sales channels. It includes calculations of operating capacity, special order profitability, and the contribution margin per unit for both William Distributors and other purchasers. The analysis also considers the impact of the special order on overall operational costs and profitability.

Preparing Budget Manufacturing Industry

Table of Contents
INTRODUCTION...........................................................................................................................4
PART A...........................................................................................................................................4
Preparing budgets....................................................................................................................4
Cash budget.............................................................................................................................4
Material budget........................................................................................................................5
Labor budget............................................................................................................................6
PART B...........................................................................................................................................6
Life cycle analysis...................................................................................................................6
QUESTION 1..................................................................................................................................6
A) Life cycle assessment approach id done to assign the cost to each product and to
calculate the environmental activities rates.............................................................................6
B) Environmental damage caused by product either Karoke machine or Bluetooth..............7
C) Analyzing the product which is damaging the environment on the bases of Life cycle
assessment approach................................................................................................................8
QUESTION 2..................................................................................................................................8
A) Identification of available production capacity and calculation of current operating
capacity in percentage..............................................................................................................8
B) Relevance of special order in production capacity.............................................................9

C) Calculation of contribution margin per unit.......................................................................9
D) Is special order is beneficial for Carter productions...........................................................9
CONCLUSION..............................................................................................................................10
REFERENCES:.............................................................................................................................11

INTRODUCTION
A budget is the quantitative expression of the financial plan during a period of time. As in
this report Carter production has made following budget in order to know about the sales or
production of the company. In this, report will provide deeper insight about the several; types of
budgeting system.
PART A
Preparing budgets
Cash budget
PARTICULARS July August September October
Opening cash balance (A) 20000000 21875000 69744500 113433500
Add: cash receipts from debtors
(B) 6225000 46687500 9337500
4482000 33615000 6723000
3361500 25211250
2988000
Total Inflows= A+B 26225000 73044500 116058500 148355750
Less: Cash Expenses ( C)
Direct Material 1312500 8531250 3281250
270000 1755000 675000
94500 614250
36000
total payment to creditors 1312500 8801250 5130750 1325250
Direct Labor 3750000 2700000 2025000 1800000
Overhead Cost 600000 600000 600000 600000
Total Outflows 4350000 3300000 2625000 2400000
Cash Surplus/ Deficit 21875000 69744500 113433500 145955750
Cash budget are the expected cash inflow or outflow of the business during the particular
period of time (Budget and Mandatory, 2016). In above table of Cash budget, budgets of

four months are given from July to October. As it is clearly shown that total inflows of the
Carters Production are increasing as from July to August there is total increment of
46819500.From August to September there is increment of 61438650.From September to
October there is increment of 136749900.As in these four months there is regularly increasing in
cash flows of the Carter Production. As by moving toward the direct labor cost there is
decreasing trend in direct labor cost, from July to August there is total decreasing of
105000.From August to September there is decreasing of 675000.From September to October
there is decreasing of 225000.
As there is permanent decreasing trend in direct cost. Move on to the total outflows of the
company. There is continuously decreasing trend is figure out in total outflow, from July to
August there is total decreasing of 105000.From August to September there is decreasing of
675000.From September to October there is increment of 225000.As total outflows varies with
the cost of direct labor. From overall analysis it shown that in the all months there is excess of
inflow over outflow, it is beneficial for company as it is the symbol of growth and increase in
sales. By seeing the cash budget manager can predict about the sales and growth of the company.
Material budget
PARTICULARS
MATERIAL
A MATERIAL B
MATERIAL
C MATERIAL D
Material required per unit 5 3 1 2
Cost of material per unit 10.5 5 7 1.5
units 250000 180000 135000 120000
Total cost of material required 13125000 2700000 945000 360000
Material budget shows the purchase of material which is purchased by the company
during the year for the purpose of production (Barbour, 2016).As above table shows that how
much material is requires to produce the 1 unit of a watch. For producing the 1 unit of watch
company needs the 5 unit of material A, 3 units of material B,1 unit of material C and 2 units of
material D After combining all the units of material company gets 1 watch. Material A is a
superior material as the cost of this material is high among all the material and cost of material D
is very less among all. Where material D cost 1.5 per unit material a cost 10.5 per unit. This
budget shows us the how much material a company required to produce a unit of watch.

Labor budget
PARTICULARS
Labor hour 0.5
Labor per hour 30
units 250000 180000 135000 120000
Total cost of Labor 3750000 2700000 2025000 1800000
Labor budget is used to calculate the hours of human power required to produce the
desired level of production. Total cost of labor is derived by the multiplying the labor hour with
labor per hour and units they have to produce. As during the period of four months it is noticed
that total cost of labor is declining due to the declining in the production of units. As production
is declining from 250000 to 180000 that is 70000 units in month of August, and from August to
September units are declined to 135000 from 180000 that is 45000 units and from September to
November units have declined to 120000 from 135000 that is 15000 units. It shows that either
company has less selling or company has stock of watches so company has decreased the
production. Labor budget is make to know the production and how much labor is required in
production level. By seeing this manager appoint or terminate employees.
PART B
Life cycle analysis
QUESTION 1
A) Life cycle assessment approach id done to assign the cost to each product and to calculate the
environmental activities rates.
Life Cycle
Assessment
Approach
Karoke Machine
Activity Cost drivers Cost drivers Unit cost Total activity Total Indirect Cost

Purchase orders No. of purchase orders 9100000
Product
packaging No. of product packages packed 220000 1150000 1740870
Energy usage No. of batches run 40000 1230000 295935
Toxins Released No. pf test runs 200000 1000000 1820000
3856805
Bluetooth Speaker
Activity Cost drivers Cost drivers Unit cost Total activity Total Indirect Cost
Purchase orders No. of purchase orders 21000000
Product
packaging No. of product packages packed 110000 1150000 2008696
Energy usage No. of batches run 20000 1230000 341463
Toxins Released No. pftest runs 50000 1000000 1050000
3400160
B) Environmental damage caused by product either Karoke machine or Bluetooth.
As per the above calculation it is clear that manufacturing of Karoke machines is more
harmful for the environment as compared to the manufacturing of Bluetooth speaker. As 2,
00,000 kg of toxins is released while manufacturing the 91, 00,000 units of karoke machines, and
50,000 kg of toxins is released while manufacturing the 21,000,000 units of Bluetooth. Karoke
machines are releasing more toxins which is damaging the environment more. For releasing the
toxin company has to pay the fines.

C) Analyzing the product which is damaging the environment on the bases of Life cycle
assessment approach.
Life cycle assessment approach is also known as life cycle analysis, It is related to
accessing the environmental impact when production takes place in an industry. This approach
include all the stages of production, extraction of raw material, manufacturing, repair and
maintenance or recycling (Wong, 2016).
As in the above case life cycle assessment approach is used at every stages of production
to see at which stage it is providing harm or damage to the environment. Proper analysis will be
done from the raw material to the final disposal of product. And company will determine at what
stage of production it is releasing the toxin which is damaging the environment. As in above
table it is clearly stated that by producing the Karoke machines company is releasing more toxin.
As production of 91,00,000 units of machines is releasing the 2,00,000 kg of toxin and in
manufacturing the 21,000,000 units of Bluetooth 50,000 kg of toxin is released.
QUESTION 2
A) Identification of available production capacity and calculation of current operating capacity in
percentage.
Particulars Operating capacity Production capacity
10000000/300000*100 10000000-9100000
3% 90000
Current operating capacity means that ratio between the output gained from business or
input incurred to run the business. In this operating capacity will be calculated on the bases of
sales and production capacity of company.
Current operating efficiency=Production capacity of company/sales made by company
=10,000,000/300,000*100

= 3%
Production capacity means that how much units can be produces by company in an year by using
current resources. This is 91%
B) Relevance of special order in production capacity.
As Carters ltd is engaged in manufacturing of Karaoke machines than it is beneficial for
it to manufactured according to the order. As in this case company will have less closing balance.
C) Calculation of contribution margin per unit.
Contribution margin is the difference between the company sales and its variable
expenses expressed in term of percentage.
Particulars William Distributors Other purchaser
Sales price per unit 35 40
less: variable cost -6 -6
Contribution margin per unit 29 34
All amount in $.
In case of William carters as it has given special order so there should be bargaining
between the prices is held. As William carters are purchasing that machine for $35 lower than
the market price. And contribution made by Carters in more in selling the machines to other
purchaser rather than to William carters.
D) Is special order is beneficial for Carter productions
As from above table it is clear that contribution will be more in selling the machines to
the other customer instead of William Distributors. In case of William distributors company has
operating cost of $8700000 and in case of other purchaser it is $10200000.So in case of William
Distributors, company has a loss of $1500000.

CONCLUSION
From above it is concluded that budgets are important part for manufacturing
industry.BY preparing Budget Company can predict its sales and production capacity.