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	=== Information about Sales and Costs ===		=== Information about Sales and Costs ===

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''by Clemens Werkmeister''

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=== Information about Sales and Costs ===

Kitefun Inc. produces a single kite model for kitesurfing. At the end of March, Kitty, the owner, expects increasing sales in the months April to July: 
{| border="1" cellpadding="2" cellspacing="0"
|- align="center"
|March: 1,000 || April: 1,500|| May: 2,500|| June: 3,000|| July: 4,000.
|}

Kitefun has to ship all kites for May to retailers at April 29. Expected unit price is $400/kite. Retailers will pay the kites sold in April at the end of the next month (May). The same '''lags''' apply to shipments and payments of the following months. 

a. In order to enable quick reactions to demand, apart from the kites sent to retailers, Kitty requires '''finished goods ending inventory''' to be 25 % of the next month's sales. However, ending inventory of March is 500 units at a unit cost of goods sold of $250. 

b. Kitefun uses the following '''direct materials''' for its kites: 
{| border="1" cellpadding="2" cellspacing="0"
|- align="center"
|align="left"|Direct Material ||Per-Unit Usage || Unit Cost ($)
|- align="center"
|align="left"|Polyester ||10 m² ||$9/m²
|- align="center"
|align="left"|Flying lines ||18 m ||$2/m
|}
Raw material policy determines that at the end of a month materials be available for half of next months' sales. This is true for March 31. 

c. The '''direct labor''' used per kite is five hours. Kitty pays $12 per average direct labor hour. 

d. Monthly '''manufacturing overhead''' is estimated using a '''flexible budgeting formula''' with activity measured in direct labor hours. 
{| border="1" cellpadding="2" cellspacing="0"
|- align="center"
|align="left"|Manufacturing Overhead ||Fixed Cost ($) ||Variable Cost/DLH ($)
|- align="center"
|align="left"|Supplies ||- ||$0.40
|- align="center"
|align="left"|Maintenance || $10,000|| $0.60
|- align="center"
|align="left"|Depreciation ||$50,000|| -
|- align="center"
|align="left"|Taxes || $10,000 ||-
|- align="center"
|align="left"|Other || $40,000 ||$1.00
|} 

e. '''Selling and administrative expenses''' are determined using a flexible budgeting formula with kites sold as activity measure. 
{| border="1" cellpadding="2" cellspacing="0"
|- align="center"
|align="left"|Selling & Administration ||Fixed Cost ($)|| Unit variable cost ($)
|- align="center"
|align="left"|Salaries || $5,000|| -
|- align="center"
|align="left"|Commissions|| - ||$3.00
|- align="center"
|align="left"|Depreciation || $10,000|| -
|- align="center"
|align="left"|Shipping ||- ||$20.00
|- align="center"
|align="left"|Other || $12,000|| $3.00
|} 

f. All purchases are for cash. The '''cash balance''' on March 31 equals $100,000. Due to the seasonal expansion of activity, Kitty expects the '''tentative ending cash balance''' to show a cash shortage by the end of April and May. In order to cover it, Kitty negotiates a loan limit with her bank. She agrees on a 12 percent annual interest rate for the amount used and on a 1.2 percent annual fee for the amounts unneeded. Interest and fees are calculated monthly, the loan limit has to be determined at March 31 for the next three months. Kitty agrees on a $600,000 limit. 

=== Operating budgets ===

Prepare the monthly and the quarterly operating and financial [[budget]]s for the second quarter with the following schedules following the '''master budget''' approach. Assume that there is no change in '''work-in-process inventories.''' 
B1. Sales budget 
B2. Production budget in units 
B3. Direct materials purchases budget (for each material and total) 
B4. Direct labor budget 
B5. Overhead budget with fixed and variable overhead 
B6. Selling and administrative expenses budget with fixed and variable expenses 
B7. Unit manufacturing cost. Calculate fixed cost per unit by dividing total fixed overhead of the month by total units produced during the month. 
B8. Ending finished goods inventory budget and beginning finished goods inventory. 
B9. Cost of goods sold budget. 
B10. Budget '''income statement''' with operating income before interest and taxes ([[Rentabilität|EBIT]]). 

=== Financial budgets ===

F1. '''Cash budget''' including the adequate financing and the resulting monthly interest and fee payments. 
F2. Budget '''net income''' (after interest expenses, financing fees and taxes). Assume a tax rate of 25 %. 

=== Analysis of the master budget ===

A1. Unit manufacturing costs are decreasing from March to June. Explain why. 
A2. Compare the change in cash with the net income. Why is the net income higher than the cash change? 
A3. Paul is responsible for Marketing and Sales at Kitefun. He suggests a price increase by 10 % in June and expects to sell 2,800 units at this price. What do you think about Paul's suggestion? Estimate the financial effects and the underlying assumptions. 
A4. Describe the budgeting approach of Kitefun with respect to typical features of [[budget|budgets]]. 

--- 
References: 
Burr/Stephan/Werkmeister: Unternehmensführung. 2. Aufl., München 2011, p. 162 ff.

Accounting Exercises 6: Budgeting - Versionsgeschichte

Wikimeister am 18. Mai 2012 um 13:13 Uhr

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