Budgeting and Financial Performance Analysis Assignment

This assignment solution provides a comprehensive analysis of a company's financial performance through a master budget, including sales, production, direct materials, direct labor, overhead, selling and administrative expenses, and cash flow projections for three months. The solution presents detailed calculations for each budget component, culminating in an income statement and a cash budget. The assignment further includes a memorandum identifying potential financial problems, such as potential operating losses and cash flow issues, and offers recommendations to improve the company's financial health. These recommendations include strategies to increase sales, reduce costs, and enhance productivity. The analysis highlights the importance of effective budgeting in identifying and mitigating financial risks, as well as making informed decisions to drive profitability and long-term financial stability. The solution emphasizes the critical role of financial planning and cost management in achieving business success.

Running head: BUDGETING 1
BUDGETING

BUDGETING 2
SALES BUDGET
Number of units to be sold 20000 30000 35000
Unit Selling Price
$
115.00
$
115.00
$
115.00
Sales Budget
$
2,300,000.00
$
3,450,000.00
$
4,025,000.00
PRODUCTION BUDGET
January February March
Projected Sales 20000 30000 35000
Add:
Desired Closing Finished Goods
Inventory 18000 21000 25200
Less:
Opening Inventory of Finished
goods 15000 18000 21000
Units required to be produced 23000 33000 39200
DIRECT MATERIAL
PURCHASE BUDGET
Working Note
January February March
Units required to be produced 23000 33000 39200
Direct material requirement:
Wood (meters) 46000 66000 78400
Components 138000 198000 235200
Actual Working
January February March
Wood (meters) needed for
production 46000 66000 78400
Add:
Desired Closing Direct Material
Inventory 33000 39200 46800
Less:
Opening Inventory of Direct
Material 23000 33000 39200
Meters to be purchased 56000 72200 86000
Cost meters ($ 10 per meter) 560000 722000 860000
Components
Components needed for
production 138000 198000 235200
Add:
Desired Closing Direct Material
Inventory 99000 117600 140400

BUDGETING 3
Less:
Opening Inventory of Direct
Material 69000 99000 117600
Components to be purchased 168000 216600 258000
Cost components ($ 5 per meter) 840000 1083000 1290000
DIRECT LABOUR BUDGET
Direct Material Labour January February March
Units of output 23000 33000 39200
Number of hours per unit of
output 3 3 3
Total Labour Hours 69000 99000 117600
Rate per hour 14.25 14.25 14.25
Total Labour Cost 983250 1410750 1675800
OVERHEAD BUDGET (IN
DOLLARS)
Manufacturing Overhead January February March
Variable overhead
Supplies 69000 99000 117600
Power 20700 29700 35280
Moving Material 13800 19800 23520
Maintenance 17250 24750 29400
Wood Waste 10350 14850 17640
Others 34500 49500 58800
Total variable manufacturing
overhead 165600 237600 282240
Fixed Overhead
Maintenance 30000 30000 30000
Supervision 16000 16000 16000
Depreciation 195000 195000 195000
Communication Cost 5000 5000 5000
Taxes 12000 12000 12000
Others 80000 80000 80000
Total Fixed manufacturing
overhead 338000 338000 338000
Total Manufacturing overhead 503600 575600 620240
SELLING AND
ADMINISTRATIVE
EXPENSE
(IN
DOLLARS)
January February March
Variable
Commissions 138000 198000 235200
Shipping 69000 99000 117600

BUDGETING 4
Others 41400 59400 70560
Total Variable selling and admin
expenses 248400 356400 423360
Fixed
Salaries 50000 50000 50000
Client Visit 10000 10000 10000
Depreciation 30000 30000 30000
Others 20000 20000 20000
Total fixed selling and admin
expenses 110000 110000 110000
Total Selling Expenses 358400 466400 533360
Finished Goods Inventory Budget
Projected Sales 2300000 3450000 4025000
Desired Closing Finished Goods
Inventory(% of next month sales) 2070000 2415000 2898000
Cost of goods sold (IN
DOLLARS)
January February March
Direct Material Used 1150000 1650000 1960000
Direct Labour 983250 1410750 1675800
Factory Overhead 503600 575600 620240
Total Factory Cost 2636850 3636350 4256040
Add: Opening finished goods stock 1440900 1729080 2017260
Total goods available for sale 4077750 5365430 6273300
Less: Closing finished goods stock 2070000 2415000 2898000
Cost of goods sold 2007750 2950430 3375300
INCOME STATEMENT (IN
DOLLARS)
Sales 2300000 3450000 4025000
Less: Cost of goods sold 2007750 2950430 3375300
Gross Profit 292250 499570 649700
Less: Operating Expenses
Selling and Admin Expenses
Variable
Commissions 138000 198000 235200
Shipping 69000 99000 117600
Others 41400 59400 70560
Total Variable selling and admin 248400 356400 423360

BUDGETING 5
expenses
Fixed
Salaries 50000 50000 50000
Client Visit 10000 10000 10000
Depreciation 30000 30000 30000
Others
20000 20000 20000
Total fixed selling and admin
expenses 110000 110000 110000
EBIT -66150 33170 116340
Interest 0 49200 126000
EBT -66150 -16030 -9660
NPAT -49612.5 -12022.5 -7245
Cash Budget
January February March
Opening Balance 400000 59750 37800
Sales 2300000 3450000 4025000
Total Cash Available 2700000 3509750 4062800
Less:
Direct Material Purchases 1400000 1805000 2150000
Labour cost 983250 1410750 1675800
Overhead
Manufacturing 308600 380600 425240
Selling and admin expenses 358400 466400 533360
Interest 49200 126000
Total Payment 3050250 4111950 4910400
Cash Surplus/(Deficit) -350250 -602200 -847600
Minimum Balance Required 50000 50000 50000
Funds required 400250 652200 897600
Loan to be borrowed 410000 640000 1090000

BUDGETING 6
MEMORANDUM
To,
Mr. Maison Broom
Date: 16/09/2019
Sub: The identification of the problems in the current budgeting process to analyse the
financial performance
Dear Sir,
From the above budgeting process it has been identified that the financial performance of
Boom Broom manufacturer is not going to be sound as the firm will have to incur certain
operating losses and there will be cash crush in the forthcoming quarter. In order to main the
cash balance as per the company’s policies it will have to borrow certain amount of funds
from the bank that will entail the interest rate of 12%. To deal with the cash crunch the firm
will also have to borrow certain amount of loan funds from the banks in return of interest
payments on an annual basis. The firm must strengthen its profitability position by either
adoption of certain marketing and promotional techniques which could result in increased
sales or it could cut down its certain operating and non-operating costs. If the sales are
increased by 50% then the firm will be able to achieve following profitability:
Sales
$
3,450,000.00
$
5,175,000.00
$
6,037,500.00
Less: Cost of goods sold
$
2,007,750.00
$
2,950,430.00
$
3,375,300.00
Gross Profit
$
1,442,250.00
$
2,224,570.00
$
2,662,200.00
Less: Operating Expenses
Selling and Admin Expenses
Variable
Commissions
$
138,000.00
$
198,000.00
$
235,200.00
Shipping
$
69,000.00
$
99,000.00
$
117,600.00
Others
$
41,400.00
$
59,400.00
$
70,560.00
Total Variable selling and admin
expenses
$
248,400.00
$
356,400.00
$
423,360.00
Fixed
Salaries
$
50,000.00
$
50,000.00
$
50,000.00
Client Visit
$
10,000.00
$
10,000.00
$
10,000.00

BUDGETING 7
Depreciation
$
30,000.00
$
30,000.00
$
30,000.00
Others
$
20,000.00
$
20,000.00
$
20,000.00
Total fixed selling and admin
expenses
$
110,000.00
$
110,000.00
$
110,000.00
EBIT
$
1,083,850.00
$
1,758,170.00
$
2,128,840.00
Interest
$
-
$
49,200.00
$
126,000.00
EBT
$
1,083,850.00
$
1,708,970.00
$
2,002,840.00
NPAT
$
812,887.50
$
1,281,727.50
$
1,502,130.00
The other thing that the firm could do is increasing its productivity and thereby reducing the
labour hour per unit along with other cost reductions such as allowing the building of
warehouse at the place of production which will reduce the moving cost of material to
warehouse. The wood waste must also be prevented so that the waste disposal cost could be
reduced to the extent possible. The company can adopt just in time technology to maintain
the correct inventory level so as to avoid the under-stocking or over-stocking. Over-stocking
can lead to excessive blocking of the business funds. Further, the use of machines in place of
manual labour for the production processes can certainly enhance the productivity of the
company. These recommendations could help the company to reduce its costs or increase its
revenue generation capacity.
Martin
Management Accountant
Boom Broom

BUDGETING 8