Performance Management and Control (ACC3MAC) Assignment: Budgeting

This project report details the process of product design and master budget preparation for a car navigation and location tracking system, proposed to address the needs of app cab drivers. The report outlines the product's design, vision, purposes, and goals, along with market research supporting its viability. It includes detailed cost estimations for materials, labor, and overhead, leading to the calculation of total product costs. A master budget is constructed, including raw materials, labor, and overhead budgets, projecting profitability based on estimated demand. The student reflects on the challenges and learning experiences gained through the assignment, emphasizing the practical application of financial planning and product development principles.

Running head: MANAGEMENT
Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction................................................................................................................................2
Product design............................................................................................................................2
Proposed product....................................................................................................................2
Vision, purposes and goals of the business............................................................................3
Cost estimates.............................................................................................................................3
Production process and design of the product........................................................................3
Estimation of costs.................................................................................................................4
Master budget.............................................................................................................................5
Reflection...................................................................................................................................6
References and bibliography......................................................................................................8

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Introduction
Product designing and preparation of the master budget is the initial stage of
development and manufacturing of a product. In this report, the complete process of product
designing and preparation of master budget have been illustrated with the help of an example
of a new product. In the first part, the proposed product has been defined and its goals,
purposes have been outlined, and in the second part the costs and budget has been prepared
and explained (Kaplan and Atkinson 2015).
Product design
Proposed product
With revolution in technology, the automobile industry has been rapidly grown up.
The app cab service has also been increased worldwide with the revolution in technology and
development in the economy. Most of the app cab drivers use their phone for location
tracking and navigation. Therefore, there is a need of a highly automated location tracking
and navigation system in cars especially for the app cab drivers. The product proposed in this
report is a location tracking and navigation system with a display unit which can be fitted into
any type of cars. An abstract image of the proposed product has been attached below.

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It has been observed from various market researches that, some of the premium
automobile companies provide navigation system inbuilt with the cars, but in low priced
vehicle it is missing. Hence, a compatible location control and navigation system can be a
game changer in this case. It will have a security system too which sends notification to the
owner if anything happens with the car and locks the ignition automatically in that situation
(Dissanayake and Sinha 2015).
Vision, purposes and goals of the business
The vision of the business is to become the market leader in manufacturing and
selling car essentials and car accessories. The proposed product that is the location control
and navigation system with a security measure will help the company to go one step ahead in
accomplishing the vision of their business. The purpose of the business is to manufacture and
sell car accessories and car essentials to serve the customers with better experience in using
their cars and automobiles. The product has been proposed keeping in mind the vision and
purposes of the business and the goal of the business is to establish a brand in manufacturing
and selling car essentials and car accessories by serving their customers with unique and
technologically developed quality products.
Cost estimates
Production process and design of the product
The device has been designed to be compact and compatible for all the cars. It can be
mounted to the windshield by a vacuum mounting kit or it can be placed to the dashboard of
the car. The dimension of the devices would be of 4 inches by 5 inches and it will wait
approx 0.25kg. Most of the parts of the product will be outsourced and it will be assembled
in-house. The devise will have 4 inches by 4.5inches LED display which will be purchased

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from a local supplier. The electronic circuit will be assembled and installed in-house along
with a GPS tracker and a motion sensor (Rauch, Dallasega and Matt 2016).
Estimation of costs
Major parts of the product include the PVC case, electronic circuit, motion sensor,
LED display and the motion sensor. All these parts will be purchased or outsourced for
production and its costs have been included in the direct materials costs (Kaplan and
Atkinson 2015). Packaging materials costs, indirect labour and inspection and testing costs
have been included in the variable overhead costs. Proportions of rent, depreciation and
supervisory expenses have been included in the fixed overhead costs per unit (Kaplan and
Atkinson 2015). Following table shows the detail breakup and estimation of all such direct
and indirect costs per unit for the proposed product.
Cost estimates per unit:
Cost of the PVC case $ 5.00
Cost of electronic circuit $ 40.00
Cot of GPS tracker $ 25.00
Cost of motion sensor $ 15.00
LED Display $ 22.00
Other direct materials $ 5.00
Total direct materials costs per unit $ 112.00
Estimated direct labour cost per unit $ 5.00
Packaging materials $ 0.80
Inspection and testing $ 0.20
Indirect labour costs $ 1.00
Variable overhead per unit $ 2.00
Depreciation $ 1.00
Rent $ 0.48
Supervision $ 1.20
Fixed overhead per unit $ 2.68
Total overhead costs per unit $ 4.68

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Direct materials costs per unit $ 112.00
Direct labour costs per unit $ 5.00
Overhead costs per unit $ 3.00
Total product costs per unit $ 121.68
IT can be observed from the above costs estimated that, to assemble a single unit of
the proposed car navigation and location control unit, it will cost around $120 including all
the variable and fixed overhead. Variable costs of the product includes direct material costs
of $112, direct labour costs of $5 and variable overhead of $2 per unit (Collis and Hussey
2017).
Following annual fixed costs have been estimated which are required to be incurred
irrespective of the volume of production, and with an expectation of annual demand for the
product of 25,000 units, the fixed overheads have been calculated in the above cost
estimation table.
Fixed costs:
Depreciation $ 25,000
Rent $ 12,000
Supervision $ 30,000
Total fixed costs $ 67,000
Master budget
Based on the above cost estimates and an estimated demand for the product of 1,171
units, the master budget has been prepared along with the raw materials budget, labour
budget and overhead budget. The master budget shows the budgeted profit per month for the
first year along with a total column for the year. It has been assumed that, all the materials are
procured in the same months and all the expenses are paid in the same month. Fixed costs
have been allocated to the budget on a monthly basis (Collis and Hussey 2017). Following is

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the extract of the master budget and please refer to the excel spread sheet for detail
calculations.
Sales forecast:
Estiamted demand in first month 1,171
Expected growth rate in demand 10%
Toal cost per unit 121.68$
Markup 20%
Sales price per unit 146.00$
Month January February March April May June July August September October November December Total
Estiamted demand 1,171 1,288 1,416 1,557 1,712 1,883 2,071 2,278 2,505 2,755 3,030 3,333 24,999
Sales revenue 1,70,966$ 1,88,048$ 2,06,736$ 2,27,322$ 2,49,952$ 2,74,918$ 3,02,366$ 3,32,588$ 3,65,730$ 4,02,230$ 4,42,380$ 4,86,618$ 36,49,854$
Purchase budget:
*It has been assumed that, alla the materials are purchased for the month and consumed in the same month.
*All the materials are purchased in case and there is no creditors for materials.
Month January February March April May June July August September October November December Total
Cost of the PVC case 5,855$ 6,440$ 7,080$ 7,785$ 8,560$ 9,415$ 10,355$ 11,390$ 12,525$ 13,775$ 15,150$ 16,665$ 1,24,995$
Cost of electronic circuit 46,840$ 51,520$ 56,640$ 62,280$ 68,480$ 75,320$ 82,840$ 91,120$ 1,00,200$ 1,10,200$ 1,21,200$ 1,33,320$ 9,99,960$
Cot of GPS tracker 29,275$ 32,200$ 35,400$ 38,925$ 42,800$ 47,075$ 51,775$ 56,950$ 62,625$ 68,875$ 75,750$ 83,325$ 6,24,975$
Cost of motion sensor 17,565$ 19,320$ 21,240$ 23,355$ 25,680$ 28,245$ 31,065$ 34,170$ 37,575$ 41,325$ 45,450$ 49,995$ 3,74,985$
LED Display 25,762$ 28,336$ 31,152$ 34,254$ 37,664$ 41,426$ 45,562$ 50,116$ 55,110$ 60,610$ 66,660$ 73,326$ 5,49,978$
Other direct materials 5,855$ 6,440$ 7,080$ 7,785$ 8,560$ 9,415$ 10,355$ 11,390$ 12,525$ 13,775$ 15,150$ 16,665$ 1,24,995$
Packaging materials 937$ 1,030$ 1,133$ 1,246$ 1,370$ 1,506$ 1,657$ 1,822$ 2,004$ 2,204$ 2,424$ 2,666$ 19,999$
Total cost of materials 1,32,089$ 1,45,286$ 1,59,725$ 1,75,630$ 1,93,114$ 2,12,402$ 2,33,609$ 2,56,958$ 2,82,564$ 3,10,764$ 3,41,784$ 3,75,962$ 28,19,887$
Labour costs budget:
*All the direct and indirect labour costs are paid in the same month.
Month January February March April May June July August September October November December Total
Direct labour costs 5,855$ 6,440$ 7,080$ 7,785$ 8,560$ 9,415$ 10,355$ 11,390$ 12,525$ 13,775$ 15,150$ 16,665$ 1,24,995$
Indirect labour costs 1,171$ 1,288$ 1,416$ 1,557$ 1,712$ 1,883$ 2,071$ 2,278$ 2,505$ 2,755$ 3,030$ 3,333$ 24,999$
Total labour costs 7,026$ 7,728$ 8,496$ 9,342$ 10,272$ 11,298$ 12,426$ 13,668$ 15,030$ 16,530$ 18,180$ 19,998$ 1,49,994$
Overhead budget:
*Fixed overhead are allocated based on an estimated annual production of 25,000 units.
*All the variable overhead are paid in the month of sales.
Month January February March April May June July August September October November December Total
Variable overhead 2,342$ 2,576$ 2,832$ 3,114$ 3,424$ 3,766$ 4,142$ 4,556$ 5,010$ 5,510$ 6,060$ 6,666$ 49,998$
Fixed overhead 3,138$ 3,452$ 3,795$ 4,173$ 4,588$ 5,046$ 5,550$ 6,105$ 6,713$ 7,383$ 8,120$ 8,932$ 66,997$
Total overhead costs 5,480$ 6,028$ 6,627$ 7,287$ 8,012$ 8,812$ 9,692$ 10,661$ 11,723$ 12,893$ 14,180$ 15,598$ 1,16,995$
Budgeted Income Statement:
Month January February March April May June July August September October November December Total
Sales Revenue 1,70,966$ 1,88,048$ 2,06,736$ 2,27,322$ 2,49,952$ 2,74,918$ 3,02,366$ 3,32,588$ 3,65,730$ 4,02,230$ 4,42,380$ 4,86,618$ 36,49,854$
Less: Cost of goods sold 1,40,286$ 1,54,302$ 1,69,637$ 1,86,529$ 2,05,098$ 2,25,583$ 2,48,106$ 2,72,904$ 3,00,099$ 3,30,049$ 3,62,994$ 3,99,293$ 29,94,880$
Gross profit 30,680$ 33,746$ 37,099$ 40,793$ 44,854$ 49,335$ 54,260$ 59,684$ 65,631$ 72,181$ 79,386$ 87,325$ 6,54,974$
Less: Fixed operating expenses 3,138$ 3,452$ 3,795$ 4,173$ 4,588$ 5,046$ 5,550$ 6,105$ 6,713$ 7,383$ 8,120$ 8,932$ 66,997$
Operating profit 27,542$ 30,294$ 33,304$ 36,621$ 40,266$ 44,288$ 48,710$ 53,579$ 58,918$ 64,798$ 71,266$ 78,392$ 5,87,976$
It can be observed from the above budget that, if the estimated annual demand of
25,000 units then the business can earn a budgeted operating profit of $587,976 in the first
year.
Reflection
I have taken up such assignment for the first time where I have researched for
designing and developing a product. Initially I found a problem in selecting a product and I
was thinking about developing a completely and unique product. It was very difficult for me
to develop and design such a new and unique product in such a short period of time. Then I

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went for searching for products which can be remodelled or redesigned with a completely
new dimension and purposes. I found potential for the product car navigation system and
location tracker including a security system. Writing about the vision, purposes and goals of
the business was easy for me but I found a great problem in researching about the designing
and manufacturing process of the product. Hence, I decided to outsource all the parts of the
product and developed the cost estimates and budgets accordingly. I have worked with excel
before and it was easy for me to prepare a master budget along with the details calculations
and breakups. Overall the assignment has given me ample opportunity to enhance my
knowledge and skill in developing and designing products and making budgets and estimates
for that.

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References and bibliography
Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
da Silva, G.C. and Kaminski, P.C., 2016. Selection of virtual and physical prototypes in the
product development process. The international journal of advanced manufacturing
technology, 84(5-8), pp.1513-1530.
Dissanayake, G. and Sinha, P., 2015. An examination of the product development process for
fashion remanufacturing. Resources, Conservation and Recycling, 104, pp.94-102.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kumar, S., Luthra, S., Govindan, K., Kumar, N. and Haleem, A., 2016. Barriers in green lean
six sigma product development process: an ISM approach. Production Planning &
Control, 27(7-8), pp.604-620.
Kyei, E., Kwaning, C.O. and Francis, D., 2015. Budgets and Budgetary Control as a
Management Tool for Ghana Metropolitan Assemblies. Journal of Finance and
Accounting, 3(5), p.159.
Nelson, A.T. and Miller, P.B., 2014. Modern management accounting. Australasian.
Accounting, Business and Finance Journal, 8, p.2.
Rauch, E., Dallasega, P. and Matt, D.T., 2016. The way from lean product development
(LPD) to smart product development (SPD). Procedia CIRP, 50, pp.26-31.