• Prepare operating budgets for the year by quarter & budgeted Income Statement for the Candy business
• Sales Information:
o Company advertises that it will match the competition (Internal factor)
o Five year historical selling total units per year: 175k, 210k, 185k, 196k, & 187k
o Surrounding shopping area includes discount stores (i.e. Target, Walmart) selling similar product for $10, $12 respectively (external factor)
o Stock Market down 25% in last 3 months, oil per barrel at record low (external factor)
o Prepare a budget after choosing one of the following sales units and selling price:
– Sales in units Q1 – 110,000, Q2 – 80,000, Q3 – 120,000, Q4 – 20,000
– Sales in units Q1 – 10,000, Q2 – 20,000, Q3 – 15,000, Q4 – 30,000
– Sales in units Q1 – 60,000, Q2 – 40,000, Q3 – 10,000, Q4 – 80,000
– Selling price per unit $5, $10, or $15
o Document why you made the decision of units and price that you did
• Production information:
o Company’s desired level of ending finished goods inventory is 15% of next quarters budgeted unit sales.
o Q1 beginning inventory would be PY Q4 ending. Which means that when calculating Q4 PY ending you would look at CY Q1 sales units. (For example if you choose the 3rd option, Q1 sales would be 60,000, so PY Q4 ending which would be CY Q1 beginning would be 60,000 * 15% = 9,000)
o When calculating Q4 ending you would need to know next years Q1 sales units. It is estimated that Q1 sales units for the following year will be a 10% increase to current year Q1. (For example if using the 3rd option, Q1 sales of the CY is estimated to be 60,000, so if next years Q1 is estimated to be 10% higher it would be 60,000 * 110% or 66,000)
• Direct materials information:
o 16 ounces (oz) of chocolate per unit
o Chocolate costs $.20 per ounce (oz)
o Company’s desired level of ending material inventory is 20% of next quarters budgeted direct material needs.
o Q1 beginning use the same method as used during the production budget.
o Q4 ending use the same method as used during the production budget.
• Direct labor information:
o Twelve minutes per unit (12 minutes/60 minutes = .2/hr per unit)
o Employees are paid $8/hour
• Overhead information:
o Production supervisor salary for the year is $32,000
o Machinery depreciation for the year using straightline is $11,500
o Factory supplies is $1.50 per DL hour
o Maintenance & repairs is $2.00 per DL hour
o Utilities is $3.00 per DL hour
• Selling, General & Administrative (SG&A) information:
o Executive salary for the year is $55,000
o Taxes & insurance for the year is $7,200
o Delivery expense is $.35 per sold unit
o Other administrative expenses is $.05 per unit sold
• Cost of Goods Manufactured information:
o WIP, beginning $237,600 & ending $193,405
• Income Statement
o Income tax 34% on net income before taxes (NIBT)
