Management Accounting: Basic Master Budget Preparation and Investment Evaluation

Running head: MANAGEMENT ACCOUNTING
Management accounting
University Name
Student Name
Authors’ Note

2MANAGEMENT ACCOUNTING
Answer to Part A:
Preparation of basic master budget:
Answer to Part B:
In this particular report, the intended investment by production manager of Picasso
Pty. ltd in a new manufacturing capacity is evaluated and analyzed. The main reason
attributable to making investment in the new manufacturing facility is growing uncertainty
and volatility in the current market for robotic equipment. Implementation of new
manufacturing facility will enable company to manufacture the parts in house that it currently
purchased. In addition to this, the assembly process is labour intensive and implementation of
new facility will help in automating such process (Mitchell and Norreklit 2017). Furthermore,
it has been projected that a reduction in direct labour and material cost will be experienced
with the implementation of new manufacturing facility. Organization is relying on using
flexible budgeting system for preparation of several budgets such as cost of goods
manufactured statement, production budget, direct labour budget, direct material budget,
purchase budget, budgetary income statement and cash collection from debtors account. The
increased investment in production capacity is likely to increase the fixed manufacturing
overhead by 50% and reduce direct labour and material cost by 25%. Company will make use
of borrowing in event of any cash shortage and the borrowed cash will be repaid along with
the interest.
It can be seen from sales budget that budgeted sales revenue of company is increasing
from $ 148980000 to $ 178776000. There has been considerable increase in volume of
budgeted production from 20240 units to 37440 units. Now, looking direct labour budget, it
can be seen that the budgeted labour cost has increased considerably from $ 3036000 to $
5616000. Purchase budget depicts the budgeted production volume and budgeted sales
volume for three months. The budgeted sales volume has reduced from 39000 to 35100 along