Budget For Sales, Production, Direct Material, Direct Labor, Manufacturing Overhead, Ending Finished Goods Inventory And Cost Of Goods Sold Budget

Sales Budget

Sales Budget:
Particulars	January	February Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	March	Total
Sales Volume (in units)	76850	61480	69160	207490
Unit Selling Price	$6,300	$6,300	$6,300	$6,300

Projected Sales (in $)	$484,155,000	$387,324,000	$435,708,000	$1,307,187,000

Production Budget:
	1st Quarter
Particulars	January	February	March	Total	April
	(in unit)	(in unit)	(in unit)	(in unit)
Projected Sales Volume	76850	61480	69160	207490	92210
Add: Closing Stock of Finished Goods	36888	41496	55326	55326
Less: Opening Stock of Finished Goods	49200	36888	41496	49200
Projected Production Volume (in units)	64538	66088	82990	213616

Direct Material Purchases Budget:
Particulars	January	February	March	Total	April
	Part 714	Part 502	Part 714	Part 502	Part 714	Part 502	Part 714	Part 502	Part 714	Part 502
Projected Production Volume	64538	64538	66088	66088	82990	82990
Material required p.u.	5	6	5	6	5	6
Total Material Required	322690	387228	330440	396528	414950	497940	1068080	1281696
Add: Closing Stock of Raw Materials	61480	73776	69160	82992	92210	110652	92210	110652
Less: Opening Stock of Raw Material	76850	92220	61480	73776	69160	82992	76850	92220
Direct Material Purchased (in units)	307320	368784	338120	405744	438000	525600	1083440	1300128
Material Cost p.u.	$92	$123	$92	$123	$92	$123	$92	$123
Projected Direct Material Purchased	$28,273,440	$45,360,432	$31,107,040	$49,906,512	$40,296,000	$64,648,800	$99,676,480	$159,915,744

Direct Labor Budget:
	1st Quarter
Particulars	January	February	March	Total
	(in unit)	(in unit)	(in unit)	(in unit)
Projected Production	64538	66088	82990	213616
Direct Labor Hours p.u.	9	9	9	9
Total Direct Labor Hours	580842	594792	746910	1922544
Direct Labor Cost per hour	$50	$50	$50	$50
Budgeted Direct Labor Cost	$29,042,100	$29,739,600	$37,345,500	$96,127,200

Manufacturing Overhead Budget
	1st Quarter
Particulars	January	February	March	Total
Total Direct Labor Hours	580842	594792	746910	1922544
Variable Overhead per labor hour:
Indirect Labor	$64.55	$64.55	$64.55	$64.55
Power	$6.15	$6.15	$6.15	$6.15
Maintenance	$37.77	$37.77	$37.77	$37.77
Other Manufacturing Cost	$46.11	$46.11	$46.11	$46.11
Total Variable Manufacturing Cost	$89,786,664	$91,943,058	$115,457,486	$297,187,208
Fixed Overhead:
Supervision	$43,033,200	$43,033,200	$43,033,200	$129,099,600
Depreciation	$3,842,300	$3,842,300	$3,842,300	$11,526,900
Rates & utilities	$3,175,200	$3,175,200	$3,175,200	$9,525,600
Maintenance	$34,967,759	$34,967,759	$34,967,759	$104,903,278
Other Fixed Overhead	$15,369,000	$15,369,000	$15,369,000	$46,107,000

Total Fixed Manufacturing Overhead	$100,387,459	$100,387,459	$100,387,459	$301,162,378
Budgeted Manufacturing Overhead	$190,174,124	$192,330,517	$215,844,946	$598,349,587

Ending Finished Goods Inventory Budget
	1st Quarter
Particulars	January	February	March
Total Production Volume	64538	66088	82990
Material Cost p.u.:
Part 714	$460	$460	$460
Part 502	$738	$738	$738
Total Material Consumed	$77,316,524	$79,173,424	$99,422,020
Total Direct Labor Cost	$29,042,100	$29,739,600	$37,345,500
Total Manufacturing Overhead	$190,174,124	$192,330,517	$215,844,946
Total Production Cost	$296,532,748	$301,243,541	$352,612,466
Production Cost p.u.	$4,594.70	$4,558.22	$4,248.85
Ending Finished Goods Inventory	36888	41496	55326
Budgeted Finished Goods Inventory	$169,489,293	$189,147,833	$235,072,145

Cost of Goods Sold Budget:
	1st Quarter
Particulars	January	February	March	Total
Budgeted Absorption Cost of Opening Inventory	$3,070	$4,594.70	$4,558.22	$3,070
Opening Stock of Finished Goods	49200	36888	41496	49200
Opening Stock Value	$151,044,000	$169,489,293	$189,147,833	$151,044,000
Add: Total Production Cost	$296,532,748	$301,243,541	$352,612,466	$950,388,755
	$447,576,748	$470,732,834	$541,760,299	$1,101,432,755
Less: Closing Finished Goods Inventory	$169,489,293	$189,147,833	$235,072,145	$235,072,145
Budgeted Cost of Goods Sold	$278,087,455	$281,585,001	$306,688,154	$866,360,610

Budgeted Income Statement:
	1st Quarter
Particulars	January	February	March	Total
Total Sales Revenue	$484,155,000	$387,324,000	$435,708,000	$1,307,187,000
Less: Cost of Goods Sold	$278,087,455	$281,585,001	$306,688,154	$866,360,610
Gross Profit	$206,067,545	$105,738,999	$129,019,846	$440,826,390
Less: Selling & Admin Expenses	$100,287,450	$80,230,000	$90,254,000	$270,771,450
Budgeted Net Profit/(Loss)	$105,780,095	$25,508,999	$38,765,846	$170,054,940

Cash Budget:
	1st Quarter
Particulars	January	February	March	Total
Cash Flow from Operating Activities:
Collection from the month’s sales	$377,640,900	$302,112,720	$339,852,240	$1,019,605,860
Collection from last month’s sales	$154,930,000	$96,831,000	$77,464,800	$329,225,800
Cash Sales	$9,683,100	$7,746,480	$8,714,160	$26,143,740
Purchase of Direct Material	($73,633,872)	($81,013,552)	($104,944,800)	($259,592,224)
Direct Labor Cost	($29,042,100)	($29,739,600)	($37,345,500)	($96,127,200)
Variable Manufacturing Overhead	($89,786,664)	($91,943,058)	($115,457,486)	($297,187,208)
Supervision Cost	($43,033,200)	($43,033,200)	($43,033,200)	($129,099,600)
Rates & utilities	($3,175,200)	($3,175,200)	($3,175,200)	($9,525,600)
Maintenance	($34,967,759)	($34,967,759)	($34,967,759)	($104,903,278)
Other Fixed Overhead	($15,369,000)	($15,369,000)	($15,369,000)	($46,107,000)
Selling & Admin Expenses	($100,287,450)	($80,230,000)	($90,254,000)	($270,771,450)
Net Cash Flow from Operating Activities	$152,958,754	$27,218,831	($18,515,746)	$161,661,839
Cash Flow from Investing Activities:
Purchase of Land		($39,959,400)		($39,959,400)
Net Cash Flow from Investing Activities	$0	($39,959,400)	$0	($39,959,400)
Cash Flow from Financing Activities:
Dividend paid	($190,000,000)			($190,000,000)
Loan Taken	$33,198,946	$46,105,510	$64,851,783	$144,156,238
Loan Repaid		($33,198,946)	($46,105,510)	($79,304,455)
Interest paid on Loan		($165,995)	($230,528)	($396,522)
Cash Flow from Financing Activities:	($156,801,054)	$12,740,569	$18,515,746	($125,544,739)
Net Increase/(Decrease) in Cash Balance	($3,842,300)	$0	$0	($3,842,300)
Add: Opening Cash Balance	$3,842,300	$0	$0	$3,842,300
Closing Balance	$0	$0	$0	$0

Total Opening & Closing Raw Material Inventory:
Particulars	January	February	March	April
	Part 714	Part 502	Part 714	Part 502	Part 714	Part 502	Part 714	Part 502
Total Sales Volume	76850	76850	61480	61480	69160	69160	92210	92210
Material Required p.u.	5	6	5	6	5	6	5	6
Stock Maintaining Level	20%	20%	20%	20%	20%	20%	20%	20%
Opening Stock	76850	92220	61480	73776	69160	82992	92210	110652
Closing Stock	61480	73776	69160	82992	92210	110652

Fixed & Variable Maintenance Cost:
Direct Labor Hours	Total Maintenance Cost
1483100	$90,984,500
1690600	$98,822,700
1552300	$93,597,200
1413900	$88,371,800
Variable Maintenance Cost per hour	$37.77
Fixed Maintenance Cost	$34,967,759

Particulars	Without New Facility	% of Total Cost	With New Facility	% of Total Cost	Variance	Remarks

Direct Material Cost	$255,911,968	27%	$191,933,976	19%	25.00%	Favorable
Direct Labor Cost	$96,127,200	10%	$72,095,400	7%	25.00%	Favorable
Variable Manufacturing Overhead	$297,187,208	31%	$297,187,208	29%	0.00%	Favorable
Fixed Manufacturing Overhead	$301,162,378	32%	$451,743,568	45%	-50.00%	Adverse
Total Production Cost	$950,388,755	100%	$1,012,960,152	100%	-6.58%	Adverse

As can be observed from the above table, the new highly automated manufacturing facility as planned to be built by Paulo would ultimately impact the business in a negative way. This can be clearly understood from the analysis of the above table. As it is mentioned in the table, the direct material cost decreases from $255,911,968 to $191,933,976 which will definitely have a favorable effect on business by a variance amount of 25%. Then comes the direct labor cost which also impacts the business in a favorable way. This is because with the installation of the new manufacturing facility the direct labor cost decreases from $96,127,200 to $72,095,400. This means that the new manufacturing reduces the dependency of business over the force of labor that is it makes business much more automated in nature (Yahya-Zadeh 2012). The variable manufacturing overhead as shown in the table remains constant. This means that there will be no change in the variable manufacturing overhead with the installation of new manufacturing facility. But the fixed manufacturing overhead does not impact the business in a favorable way rather it impacts business in an adverse way. This is because after the installation of the new manufacturing facility the fixed manufacturing overhead increases from $301,162,378 to $451,743,568 that represents a variance of 50% which will have an adverse effect on business. Lastly as it can be obtained from the table the total production cost also increases from $950,388,755 to $1,012,960,152 which clearly indicates the fact that the installation of the new manufacturing facility would not be a very good idea as it would increase the total cost of production thus decreasing the total revenue earned by the company (Caamaño-Alegre et al., 2013).

Sales Budget Variance:
Particulars	Actual	Budgeted	Variance
Quarterly Sales Volume	184700	207490	-22790
Unit Selling Price	$6,300	$6,300	$6,300
Total Sales Revenue	$1,163,610,000	$1,307,187,000	($143,577,000)
Remarks			Adverse

As can be observed from the sales budget variance, the total sales revenue differs from the budgeted sales revenue by a negative amount of $143,577,000. This means that the estimated figure that the organization expected to obtain as a part of the sales revenue was much more than what was actually gained as total sales revenue. Therefore the sales budget variance represents an adverse effect. The reasons for such a disparity may be due to increase in sales on credit or increase in the amount of debts that could not be recovered or decrease in the general market price or change in demand and preference of the consumers (Klychova, Faskhutdinova and Sadrieva 2014).

Material Price Variance:
Particulars	Part 714	Part 502	Total Cost
Actual Material Used	669600	1043700
Standard Price p.u.	$92	$123
Standard Cost for Actual Quantity	$61,603,200	$128,375,100	$189,978,300
Actual Material Cost	$52,362,720	$81,932,260	$134,294,980
Material Price Variance	($9,240,480)	($46,442,840)	($55,683,320)
Remarks	Favorable	Favorable	Favorable

Production Budget

The material price variance represents a favorable outcome. This indicates that the budget was more or less accurately prepared therefore the estimated figures correctly match with the actual figures incurred.

Material Usage Variance:
Particulars	Part 714	Part 502	Total Cost
Actual Material Used	669600	1043700
Standard Price p.u.	$92	$123
Standard Cost for Actual Quantity	$61,603,200	$128,375,100	$189,978,300
Budgeted Material Cost	$98,263,360	$157,648,608	$255,911,968
Material Usage Variance	$36,660,160	$29,273,508	$65,933,668
Remarks	Adverse	Adverse	Adverse

The material usage variance represents an adverse outcome. This means that the stipulated or budgeted quantity of input that had been fixed by the management was not properly executed. Business had used input in much more quantity than what was estimated, this resulted in the difference between the budgeted and the actual figures.

Direct Labor Rate Variance:
Particulars	Amount
Actual Direct Labor Hours	1191510
Standard Rate per labor hour	$50
Standard Labor Cost for Actual Labor Hours	$59,575,500
Actual Direct Labor Cost	$50,639,200
Material Price Variance	($8,936,300)
Remarks	Favorable

The direct labor variance represents a favorable outcome. This means that there is no much difference between the budgeted figure and the actual figure.

Direct Labor Efficiency Variance:
Particulars	Amount
Actual Direct Labor Hours	1191510
Standard Rate per labor hour	$50
Standard Labor Cost for Actual Labor Hours	$59,575,500
Budgeted Labor Cost	$96,127,200
Material Price Variance	($36,551,700)
Remarks	Favorable

The direct labor efficiency represents a favorable outcome. This means that there is not much disparity in the estimated figures and the budgeted figures and that the budget had been prepared more or less accurately.

When the imposed budgetary approach is employed by the management in order to prepare the budget the implication of such a decision has both negative and positive effects. The positive effect of such a decision is that the management is not answerable to anyone in regards to structuring the budget. It can use its own methods and findings to figure out the particular estimations and then implement it in the organization. On the other hand the negative implication of such a decision is that the budget after being prepared by the management is imposed upon the general staff of the organization. No input from the staff at the lower hierarchy of authority is taken into consideration. This may result in dissatisfaction among the employees and the employees may not feel one with the budgetary decisions. Paulo as a production manager may feel the same in case of an imposed budgetary approach and though Paulo may be concerned with the disparities in the budget but as no input was taken from him, he will not be affected by the errors that may have been undertaken while preparing the budget (Mutiganda 2013).

In case of a participative budgetary approach, inputs from all the levels of authority is incorporated and evaluated while preparing a budget. Estimations by the general staff is submitted to the supervisors who in turn submit their evaluated inputs to the management and ultimately with all these inputs the directors of the organization prepare the final budget. In case of such an approach all the employees feel important as the important estimations provided by them are considered by the management. The employees feel motivated and in case of any errors in the budget, each and every staff feel the urgency to find out the particular mistakes committed in the preparation of the budget. In case of Paulo he would feel the same and would be very concerned with the disparities in the budget as he had been an active member in preparing the budget (Bridgelall 2014).

References

Yahya-Zadeh, M., 2012. Comprehensive variance analysis based on ex post optimal budget. Academy of Accounting and Financial Studies Journal, 16, p.65.

Caamaño-Alegre, J., Lago-Peñas, S., Reyes-Santias, F. and Santiago-Boubeta, A., 2013. Budget transparency in local governments: an empirical analysis. Local Government Studies, 39(2), pp.182-207.

Mutiganda, J.C., 2013. Budgetary governance and accountability in public sector organisations: An institutional and critical realism approach. Critical Perspectives on Accounting, 24(7), pp.518-531.

Bridgelall, R., 2014, March. A participatory sensing approach to characterize ride quality. In Sensors and Smart Structures Technologies for Civil, Mechanical, and Aerospace Systems 2014 (Vol. 9061, p. 90610A). International Society for Optics and Photonics.

Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.

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