Performance Management and Control: A Comprehensive Analysis

This report presents a comprehensive analysis of performance management and control, focusing on the development of a master budget for molasses cookie production. The report begins with an introduction to master budgeting, outlining its components and importance. It then delves into detailed budget components, including sales forecasts, production budgets, direct material budgets (sugarcane, chocolate chips, flour, etc.), direct labor budgets, manufacturing overhead, and selling and administration budgets. The report calculates key financial metrics, such as total revenue, material costs, labor costs, and overhead expenses. It culminates in a budgeted income statement, revealing a net loss due to operational costs exceeding the gross margin. The conclusion emphasizes the need for cost-saving measures or increased selling prices to achieve profitability, providing a valuable analysis for financial decision-making.

Running head: PERFORMANCE MANAGEMENT AND CONTROL
Performance Management and Control
Name of the Student
Name of the University
Author Note:

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PERFORMANCE MANAGEMENT AND CONTROL
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Sale forecast and Master Budget............................................................................................3
Production Budget..................................................................................................................4
Direct Material Budget...........................................................................................................4
Direct Labour Budget.............................................................................................................7
Manufacturing Overhead.......................................................................................................7
Selling and Administration Budget........................................................................................9
Budgeted Income Statement................................................................................................10
Conclusion................................................................................................................................10
Reference..................................................................................................................................12

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Introduction
Master budget is a budget that is prepared based in the historical data of the existing
company, or an estimation or forecast for new companies (Bužinskienė). The vital component
of a master budget is the accounting data that provides information of the past, which enables
to build a budget that will incorporate attainable goals. The components of the master budget
are sales budget, production budget, direct material budget, direct labour budget,
manufacturing overhead budget, selling and administration budget, finished goods budget,
cash budget, budgeted income statement and budgeted balance sheet.
Discussion
The most common name that comes to our mouth is molasses as most of us are fond
of sweet. Cookies are something that remains favorite for all irrespective of the age. Hence
molasses cookies would be something that will cater the needs and will be demanded, if the
price are kept competitive with other cookies in the industry. Apart from being healthy, it will
be the ultimate choice for the children as it prevents obesity.

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Sale forecast and Master Budget
Creating a sales budget is vital to improve the cash flow of the company. By creating
a sales budget, the company incorporates, attainable objective that includes required or
estimated profit, and the total cost that the company estimates to incur. The sales budget of
the company is as provided below:
Revenue Budget
Selling Price
Unit
Sold
Total
Revenue
Sale
s $ 50 80,000
$
40,00,000
From the revenue budget, the total revenue has been estimated, which is calculated
using the selling price per unit and the total unit expected to be sold.

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Production Budget
Once the sales budget is prepared, the production budget is the next budget that needs
to be worked on. The production budget provides necessary information related to the
preparation of the direct material, direct material and manufacturing overhead. Here is the
production budget and the details of the material, labour and overheads:
Production Budget (Units)
Sales 80,000
Ending Inventory 2,200
Total 82,200
Less Beginning Inventory 2,000
Production 80,200
The above production budget is prepared by including the closing stock of inventory
and excluding the inventory already produced in the previous year.
Direct Material Budget
The direct material budget includes the number and type of materials required to
prepare molasses cookie. It includes Sugarcane, chocolate chips, flour, baking soda, salt, salt,
cinnamon, cloves and ginger (Filipčev et al., 2016). Since the company has been operating
for some years; therefore, it has opening inventory that can also be used in the production
process.
The basic information related to the direct materials requirement and price are:

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Direct Materials Usage and Purchases Budget
Materials used Units Price Cost
Sugarcan
e
80,20
0
$
3
$
2,40,600
Chocolate
chips,
flour and
baking
soda
80,20
0
$
5
$
4,01,000
Salt,
cinnamon
, cloves
and
ginger
80,20
0
$
2
$
1,60,400
Total Materials Used
$
8,02,000
Add Target Ending
inventory

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Sugarcan
e
$
7,000
Chocolate
chips,
flour and
baking
soda
$
1,200
Salt,
cinnamon
, cloves
and
ginger
$
700
Total Target Ending
Inventory
$
8,900
$
8,900
Less Beginning
Inventory
Sugarcan
e
$
3,000
Chocolate
chips,
flour and
baking
soda
$
1,000
Salt,
cinnamon
, cloves
and
ginger
$
500
Total Beginning
Inventory
$
4,500
$
4,500
TOTAL
PURCHASES
$
8,06,400

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PERFORMANCE MANAGEMENT AND CONTROL
The direct material usage and purchase budget shows the total purchase the company
has done after considering the amount of inventory that has been kept in the beginning and at
the end of the financial year. Such information can be used to estimate the requirement for
labor and is a useful information in the next part of the budget i.e. direct labour budget.
Direct Labour Budget
After preparing the sales budget and accordingly estimating the production, the next
determination is related to the requirement of the labour. Direct labour includes all the
employees actually required to manufacture the molasses cookie on the production floor. The
cost per hour includes the wages, payroll taxes and fringe benefits. Hence the total cost has
been calculated by multiplying the labour cost per hour with the number of hours worked
(Ehrenberg & Smith, 2016).
Direct Labour Budget
Units
Hours
Per
Unit Total Hours
Rate per
Hour Labour Cost
Assembl
y 80,200 0.5 40,100
$
15
$
6,01,500
Packing 80,200 0.1 8,020
$
10
$
80,200
Total 0.6 48,120
$
6,81,700
Manufacturing Overhead
The manufacturing overhead includes all the cost of production incurred other than
buying direct raw material and direct labour, that includes some variable and fixed
component (Gersil & Kayal, 2016). The fixed manufacturing overhead of the company
consist of depreciation, insurance, taxes and miscellaneous expenses. On the other side,
variable expenses include indirect labour, supplies, maintenance and other miscellaneous
expenses.

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PERFORMANCE MANAGEMENT AND CONTROL
The above manufacturing overheads shows the variable overhead incurred per unit of
molasses cookie production, fixed overhead rate of labour per hour along with the cost of
goods sold excluding the value of the ending inventory budget. All the information gathered
will now help in preparation of the income statement (Bogsnes, 2016).
Selling and Administration Budget
The selling and administration budget is prepared since the manufacturing process has
to administrated and marketed apart from producing the product itself (Keskinen, 2015). The
related administration and marketing cost are shown below:
Support Department Costs:
Administration $ 10,34,580
Marketing $ 6,20,748

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Distribution $ 3,10,374
Customer Service $ 1,03,458
Total $ 20,69,160
Income Tax Rate 25%
Budgeted Income Statement
The budgeted income statement shows the profit derived by selling the estimated units
of molasses cookies. The above income statement shows that the company has gross profit of
around 26%. However, the gross margin is not sufficient to cover the operating cost of the
company and hence the company suffers net loss at the end. Since the company is suffering
loss, therefore, the company’s tax liability will be Nil (Sadgrove, 2016).
Conclusion
From the above report, it can be concluded that master budget for the production of
the molasses cookies will eventually lead to a net loss to the company. hence, the company
needs to focus more in the cost saving methods or increase the selling price of the cookies so
as to cover the operational cost and arrive at the net profit eventually. This master budget will

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eventually provide an analysis on the estimated expectation and help the company to take
necessary actions thereafter.

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Reference
Bogsnes, B. (2016). Implementing beyond budgeting: unlocking the performance potential.
John Wiley & Sons.
Bužinskienė, R. Master budget formation in private companies.
Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy.
Routledge.
Filipčev, B., Mišan, A., Šarić, B., & Šimurina, O. (2016). Sugar beet molasses as an
ingredient to enhance the nutritional and functional properties of gluten-free
cookies. International journal of food sciences and nutrition, 67(3), 249-256.
Gersil, A., & Kayal, C. (2016). A Comparative Analysis of Normal Costing Method with Full
Costing and Variable Costing in Internal Reporting. International Journal of
Management, 7(3).
Keskinen, L. (2015). Organization of the marketing communication activities after fusion-the
integration and the decision-making processes.
Sadgrove, K. (2016). The complete guide to business risk management. Routledge.