Question

The JustOneMore Company produces and sells organic plain potato chips. The one-pound family size bag of chips has two direct materials – potatoes and packaging. JustOneMore is preparing budgets for the second quarter ending June 30, 2019. For each requirement below prepare budgets by month for April, May, and June, and a total budget for the quarter.

Parts 1-4 are included, ONLY parts 5-8 are needed!

1. The previous year’s sales (2018) for the corresponding period were:

April                      60,000 bags

May                       70,000 bags

June                       85,000 bags

July                        75,000 bags

August                  65,000 bags

The company expects the above volume of sales to increase by 6% for the period April 2019 – August 2019. The budgeted selling price for 2019 is $11.00 per bag of chips. The company expects 20% of its sales to be cash (COD) sales. The remaining 80% of sales will be made on credit. Prepare a Sales Budget for JustOneMore.

2. The company desires to have finished goods inventory on hand at the end of each month equal to 12 percent of the following month's budgeted unit sales. On March 31, 2019, JustOneMore expects to have 7,632 bags of chips on hand. Prepare a Production budget.

3. The final product (bags of chips) requires two direct materials: potatoes and packaging. 4 pounds of raw potatoes are required for each one-pound bag of potato chips. Management desires to have materials on hand (i.e., pounds of potatoes) at the end of each month equal to 25 percent of the following month's production needs. The beginning materials inventory, April 2019, is expected to be 66,504 pounds. Potatoes cost $1.10 per pound.

Packaging material is purchased by the roll and 50 bags of chips are produced from each roll. The packaging is made from biodegradable, organic plant fiber that extends the shelf life of the potato chips while preserving its freshness. Management desires to have packaging on hand at the end of each month equal to 15 percent of the following month's production needs. The beginning inventory of packaging (i.e., rolls of packaging material) in April 2019 is expected to be 200 rolls. Packaging is expected to cost $13 per roll.

Note, budgeted production in July is required in order to complete the direct materials budget for June. Also, use the @ROUNDUP function to round up to the nearest whole number of pounds of potatoes and number of rolls of packaging material to purchase. Further, because two direct materials are required for production – potatoes and rolls of packaging - you will need a separate schedule for each direct material. Prepare a Direct Materials budget.

4. Each bag of chips requires 0.15 hours of direct labor. Each hour of direct labor costs the company $21. Prepare a Direct Labor budget.

5. JustOneMore budgets indirect materials (e.g., salt, oil) at $0.04 per bag. JustOneMore treats indirect labor and utilities as mixed costs. The variable components are $0.45 per bag for indirect labor and $0.15 per bag for utilities. The following fixed costs per month are budgeted for indirect labor, $20,000, utilities, $3,000, and other, $10,000. Prepare a Manufacturing Overhead budget.

6. Variable selling and administrative expenses are $1.05 per bag of chips sold. Fixed selling and administrative expenses are $40,000 per month. These costs are not itemized, i.e., the budget has only two line items – variable operating expenses and fixed operating expenses.   Prepare an Operating Expenses budget.

7. Prepare a Budgeted Manufacturing Cost per unit budget. Refer to exhibit 9-11 for guidance. To calculate FMOH/unit calculate total FMOH for the year and divide this by budgeted production for the year. The total production volume for the year is budgeted at 850,000 bags.

8. Prepare a Budgeted Income Statement for the quarter for JustOneMore. Assume interest expense of $0, and income tax expense of 21% of income before taxes.

Directions:

Refer to Chapter 9 (The Master Budget) for guidance in setting up your budgets and schedules. Adapt your schedules for the specific details outlined in the requirements above. Prepare your budgets using Excel. Use formulas and cell references so that any change you make in one budget is carried through to all the budgets. There should be no hard keyed numbers in your formulas. For example, if you change the ‘sales volume increase’ from 6% to 7% you should see effects of that change throughout the other budgets. Likewise, if the budgeted selling price changes from $11 to $12.00 your spreadsheet model should be able to quickly and easily accommodate this change, i.e., change the input cell for budgeted selling price and see the effect on income.

The spreadsheet will be graded on presentation, correctness, and quality of your spreadsheet model (i.e., does it update correctly for changes in input variables). See the grading rubric on Canvas. You should approach this assignment as if you are the Management Accountant at the JustOneMore Company and you are going to present these budgets in a meeting to the CEO, CFO, and other management personnel.

Below is the initial work for parts 1-4. Only parts 5-8 are needed!

Budget 1 Sales Budget Budgeted Sales (units) Quarter 227900 Selling Price p.u Budgeted Sales (in $) Cash Sales (20%) Credit Sales (80%) Apr May Jun 63600 74200 90100 (60000* 1.06) (70000*1.06) (85000*1.06) 11.00 $ 11.00 $ 11.00 $ $ 6,99,600 $ 8,16,200 $ 9,91,100 $ $ 1,39,920 $ 1,63,240 $ 1,98,220 $ $ 5,59,680 $ 6,52,950 $ 7,92,880 $ 11.00 25,06,900 5,01,380 20,05,520 Budget 2 Production Budget Budgeted Sales (units) (+) Closing Inventory (12% of next month Budg Sale) - Opening Inventory Budgeted Production (units) Apr 63600 8904 -7632 64872 May 74200 10812 -8904 76108 Jun 90100 9540 -10812 88828 Quarter 227900 9540 -7632 229808 Budgeted Sales for July (in units) (75000* 1.06) Closing Inventory for Jun (79500*12%) 79500 9540

Answer 1

5)

PARTICULARS JUNE QUARTER MANUFACTURING OVERHEAD BUDGET APRIL I MAY VARIABLE OverHEADS · INDIRECT MATERIAL 0.04 • INDIRECT LABOUR 0.45 • UTILITES 0.04 0.04 0.45 0.45 0.15 0.15 0.15 * Total Variable OH.Per 0.64 Bag. 0.64 0.64 Budgeted Production (Bago) 64872 76108 88828 Total Variable OH. $41518.08 $48709-12 1156849.92 $147077-12 FIXED OVERHEAD • INDIRECT LABOUR 20000 20000 20000 O UTILITIES 3000 3000 3000 TO OTHERS 10000 10000 10000 Total fixed Overhead Ⓡ$33000 33000 33000 $99000. Total Manufactwing Overhead (A+B) $74518.08 $81409-12 $89849.92 $246077-12

6) Operating Expenses Budget:-

It consists of all the Expenses incurred for the production of a product i.e all the goods or services used or consumed in operating a business.

Particulars	April($)	May($)	June($)	quarter($)
Direct Material Cost	313239.20	369160.20	401868.20	1084267.60
Direct Labour Cost	204346.80	239740.20	279808.20	723895.20
Variable Manufacturing Overheads	41518.08	48709.12	56849.92	147077.12
Fixed Manufacturing Overheads	33000	33000	33000	99000
Variable Administration Overhead *	68115.60	79913.40	93269.40	241298.40
Fixed Administration overhead	40000	40000	40000	120000
Total Operating expenses	700219.68	810522.92	904795.72	2415538.32

* Computation of Variable selling and Administration Expenses:-

Particulars	April	May	June	Quarter
Variable selling OH per Bag	1.05	1.05	1.05	1.05
No of Bags (from prod Budget)	64872	76108	88828	229808
Total Variable selling & Admn OH	68115.60	79913.40	93269.40	241298.40

7). As per working in Point 5 total Manufacturing OH for the Quarter is $ 246077.12.

Production Volume for the year = 850000 bags

Therefore for quarter = 850000/4 = 212500 bags

budgeted Manufacturing cost per unit = 246077.12 / 212500 = $1.158 i.e 1.16.

8).Budgeted Income Statement :-

Particulars	April($)	May($)	June($)	Quarter
Budgeted Sales (Operating sales)	699600	816200	991100	2506900
Operating Expenses (from point 5)	700219.68	810522.92	904795.72	2415538.32
Income before interest & Taxes	(619.68)	5677.08	86304.28	91361.68
Taxes @ 21%	0	1192.18	18123.90	19316.08
Net Income after Taxes	(619.68)	4484.90	68180.38	72045.60