Question

Application & Analysis Mini Cases Budgeting for a Single Product In this activity, you will be creating budgets for a single product for each of the months in an upcoming quarter. Select a product that you could purchase in large quantities (at a Sam's Club or other warehouse retail chain) and repackage into smaller quantities to offer for sale at a sidewalk cafe, a sporting event, a flea market, or other similar venue. Investigate the price and quantity at which this product is available at the warehouse. Choose a selling price for the smaller (repackaged) package. Make reasonable assumptions about how many of the smaller units you can sell in each of the next four months (you will need the fourth month's sales in units for the operating budgets). Basic Discussion Questions 1. Describe your product. What is your cost of this product? What size (quantity) will you purchase? At what price will you sell your repackaged product? Make projections of your sales in units in each of the upcoming three months. 2. Estimate how many hours you will spend in each of the upcoming three months doing the purchasing, repackaging, and selling. Select a reasonable wage rate for yourself. What will your total labor costs be in each of the upcoming three months? 3. Prepare a sales budget for each of the upcoming three months. 4. Prepare the direct material budgets for the upcoming three months, assuming that you need to keep 10% of the direct materials needed for next month's sales on hand at the end of each month (this requirement is why you needed to estimate unit sales for four months). 5. Prepare a direct labor budget (for your labor) for each of the upcoming three months. 6.Think about any other expenses you are likely to have (i.e., booth rental at a flea market or a vendor license). Prepare the operating expenses budget for each of the upcoming three months. 7. Prepare a budgeted income statement that reflects the budgets you prepared, including the sales budget, direct materials budget, direct labor budget, and the operating expenses budget. This budgeted income statement should include one column for each of the three months in the quarter, and it should also include a total column that represents the totals of the three months. What is your projected profit by month and for the quarter?

Answer 1

Solution:

1) Sales Projection Upcoming Quarter May, June and July 1 unit Harry Potter 1-7 special addition books 1 unit Magnolia Table sing book Purchased Quantities at discount for 1000 units of Harry Potter @ $45,000 and 1000 units of Magnolia Table@$ 15000 Cost per unit 45000/1000 $45 for Harry Potter Cost per unit 15000/1000 $15 for Magnolia Table Selling Price of 1 unit Harry Potter @ $59.98 Selling Price of 1 Magnolia Table @ $18.98 Sales Projection Product Description May Sales June Sales July Sales Agust Sales 900 Harry PorterSpecial edition Magnolia Table X) 900

2) Calculation of Direct Lobor Cost: Description Purchasing Repacking Selling Total Direct Labor hours Monthly Per hour Rate Montly Wages Quarterly Wages$480$120$480 4 $20 $160 20 550 $360 $10 $20

3) Sales Budget: Product Description Mav Sales June Sales July Sales Harry Porter Special edition Cost per unit Magnolia Table Cost per unit 900 $59.98 800 $18.98 1000 $59.98 1000 $18.98 1200 $59.98 900 $18.98 Total Sales $69,166$71 $72,962.00$71,064.00

4) Direct Material Budget Product Description Ma June Jul Harry Porter Special edition Cost per unit Magnolia Table Cost per unit 1000 $45.00 900 $15.00 1120 $45.00 1090 $15.00 1280 $45.00 990 $15.00 Total Cost $58,500.00$66,7 750.00 $72,450.00

5) Direct Labor Budget Description May June July Purchasing Per hour Rate Repacking Per hour Rate Selling Per hour Rate $20 $4 $10 $8 $20 $20 $4 $10 $8 $20 $4 $10 $8 Total Cost $360.00$360.00 $360.00

6) Other Expenses Description May June July Transporation Expenses Communication Expenses Packing Material Expenses $100.00 50.00 $125.00 $30.00 $50.00$50.00$50.00 $20.00 $200.00 $205.00 $140.00 Total Cost

7) Budgeted Income Statement Budgeted Income Statement for the QuarterMay DebitMay CreditJune DebitJune CreditJuly DebitJuly CreditTotal Debit Sales Cost of Goods Sold Direct Material Direct Labor Operating Expenses Net Profit Total Credit $2,13,192 $69,166 $72,962 $71,064 $58,500 $360 $200 $66,750 $360 $205 $72,450 $360 $140 $1,97,700 $1,080 $545 $13,867